Coca-Cola (KO) is scheduled to report results of its fiscal fourth quarter before the market open on Wednesday, February 10, with a conference call scheduled for 8:30 am ET. What to watch for:
1. GUIDANCE, COMMENTARY: When Coca-Cola reported Q3 earnings on October 22, 2020, it said "as the coronavirus pandemic continues to evolve, there is uncertainty around its ultimate impact; therefore, the company's full year financial and operating results cannot be reasonably estimated at this time." Management did add some color, though, saying, "For comparable net revenues, the company expects an approximate 3% currency headwind based on the current rates and including the impact of hedged positions. For comparable operating income, the company expects an approximate 6% currency headwind based on the current rates and including the impact of hedged positions. The company's underlying effective tax rate is estimated to be 19.5%."
James Quincey, chairman and CEO of Coca-Cola, said at that time, "Throughout this year's crisis, our system has remained focused on its beverages for life strategy. We are accelerating our transformation that was already underway, shaping our company to recover faster than the broader economic recovery. While many challenges still lie ahead, our progress in the quarter gives me confidence we are on the right path."
2. BARRON'S CALLS STOCK A BUY: Coke is in more than 200 countries and for many decades has had a global reach like no other consumer company, and when the world starts to get back to normal in 2021, the soda giant will be poised to rebound along with it, Andrew Bary wrote in Barron's in late October. As a post-pandemic "reopening" play, however, shares of Coca-Cola seem to be underappreciated, the author contended, adding that the stock has lagged behind PepsiCo (PEP) and Procter & Gamble (PG) this year. More than those consumer peers, Coke benefits from rising living standards in the developing world. And Coke provides exposure to a weaker dollar because the company generates about 75% of its profits outside the U.S., the author noted.
In January, Nicholas Jasinski also suggested Coca-Cola as a value stock in Barron's, noting that a growing cadre of investors and strategists are betting that 2021 will finally be the year when value stocks outperform growth. Bank of America (BAC), Coca-Cola, CVS (CVS), Liberty Braves (BATRK), MSG Sports (MSGS), Sysco (SYY) and Disney (DIS) might not all look cheap on the surface, but they each meet some definition of value - and they could all outperform in the year to come.
3. TAX RULING LEADS TO DOWNGRADES: On January 6, Deutsche Bank analyst Steve Powers downgraded Coca-Cola to Hold from Buy with a price target of $55, down from $57. The November U.S. tax court judgment stipulating that Coca-Cola owes the Internal Revenue Service $3.3B in taxes is a "material added setback" along with an uncertain pace of a broader recovery, Powers said. The analyst believes the judgment is likely to be appealed and/or ultimately settled, but he foresees "lingering, if not rising" downside risks associated with the judgment.
The following day, JPMorgan analyst Andrea Teixeira downgraded Coca-Cola to Neutral from Overweight with an unchanged price target of $55. The analyst sees increased risk that the company loses its current tax dispute with the Internal Revenue Service. In November, the U.S. Tax Court ruled in favor of the IRS, which determined that Coca-Cola would owe $3.3B in taxes for the tax years 2007 through 2009. On top of that, there is a risk that this amount could more than triple should the IRS apply the same tax treatment to Coca-Cola for the tax years after 2009, Teixeira noted. The analyst believes this tax overhang "may linger into a good part of 2021."
Coca-Cola
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PepsiCo
-0.48 (-0.34%)