Coca-Cola's Revenue And Profit Shows Resilient Growth Amid Inflation: Goldman Sachs

Goldman Sachs analyst Bonnie Herzog reiterated a Neutral rating on the shares of Coca-Cola Company KO with a price target of $60.00.

KO delivered an impressive second-quarter top line beat, which coupled with strong gross margin expansion led to an EPS beat at $0.84, opined the analyst.

The analyst was caught surprised with the magnitude of the earnings beat yet again.

The top-line beat was driven by strong price/mix growth of +9% y/y – ahead of the analyst's estimate, which continues to reflect KO's strong pricing power and impressive revenue growth management capabilities. 

Despite some lingering cost pressures and inflation, gross margins expanded ~200bps y/y to 61.4%, with the operating margin also up ~120bps y/y to 32.8%.

Given the strong quarter, KO raised its FY24 guidance for the second time this year, which is very strong compared to its CPG peers, noted the analyst.

The analyst also noted that the top-line organic growth guidance includes the anticipated pricing impact of several markets experiencing intense inflation.

Overall, the analyst considers KO's guidance is reflective of still-resilient consumer elasticities and the company's impressive execution in a challenging operating environment.

The analyst expects ongoing f/x headwinds and tempered reported dollar EPS growth this year could weigh on the stock in the near term.

That said, the analyst continues to see a neutral risk/reward given KO's ongoing litigation with the IRS and potential tax liabilities while KO's exposure to floating rate debt and stepped-up f/x headwinds keeps the analyst on the sidelines.

The analyst's 12-month price target of $60 is based on an equal-weighted P/E of 19.5x and EV/EBITDA of 16.1x, both on the FY25 estimates.

Price Action: KO shares are trading higher by 0.69% at $65.22 at last check Tuesday.

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