Goldman Sachs analyst Bonnie Herzog lifted the price target on Coca-Cola stock to $65 (1.2% downside potential) from $60 following the company’s Q2 results but maintained a Hold rating. While the beverage king reported solid beat-and-raise results for Q2 FY24, Herzog prefers remaining on the sidelines owing to several reasons, including KO’s neutral risk-reward profile and the ongoing litigation with the U.S. IRS (Internal Revenue Service).
Coca-Cola has an undisputable market share in the soft drinks market. The company’s adjusted earnings per share (EPS) rose by 7% in Q2 2024, while revenues jumped 3% year-over-year. What’s more, the company raised its full-year guidance for organic sales and adjusted EPS.
These are Herzog’s Thoughts on KO
Herzog is highly impressed by Coca-Cola’s solid organic revenue growth of 15% compared to rival PepsiCo’s (PEP) modest low-single-digit growth. Additionally, Herzog highlighted Coca-Cola’s enhanced gross margins, which gained from robust top-line growth and bottler re-franchising. The analyst thinks that the company’s revised guidance is achievable despite a challenging global consumer backdrop.
The analyst is also encouraged by KO’s consistent approach to investing in brand building. This enables the company to continue generating steady and sustainable long-term growth.
However, Herzog explained that KO stock currently trades at a 45% premium to the beverage universe on a forward EV/EBITDA (enterprise value/earnings before interest tax depreciation and amortization) multiple and even higher than its own 3-year historical premium. This premium pricing makes the analyst remain on the sidelines on Coco Cola stock, for now.
The analyst also listed other caveats for remaining on the sidelines on KO stock. These include a challenging macro backdrop, uncertainty related to the U.S. IRS litigation, exposure to foreign exchange fluctuations, and a floating-rate debt.
Bonnie Herzog is a four-star analyst on TipRanks, having an average return of 3.30% and a success rate of 59%.
Is Coca-Cola Stock a Buy or Sell?
Analysts remain divided on Coca-Cola stock’s trajectory. On TipRanks, KO stock has a Moderate Buy consensus rating based on 14 Buys versus five Hold ratings. The average Coca-Cola price target of $69.76 implies 6% upside potential from current levels. Year-to-date, KO shares have gained 13.5%. KO stock also pays a regular quarterly dividend of $0.485 per share, reflecting an above-average yield of 2.9%.
Key Takeaways
Herzog lifted the price target on Coca-Cola stock due to the company’s upbeat guidance and solid momentum. However, the analyst continues to have a Hold rating on the stock due to several reasons, including its valuation levels.
