Coca-Cola's (KO -1.30%) stock rose 2% on Oct. 25 after its third-quarter numbers easily cleared Wall Street's expectations. The beverage maker's revenue rose 10% year-over-year to $11.1 billion, beating analysts' estimates by $600 million, as its organic revenue jumped 16%. Its comparable EPS grew 7% to $0.69 and topped expectations by a nickel.

That solid earnings beat reinforces the notion that Coca-Cola is still a safe bear market buy, and explains why its stock has stayed roughly flat this year as the S&P 500 declined nearly 20%. But should investors still buy Coca-Cola as inflation, rising interest rates, and a strong dollar continue to rattle the markets?

A person holds a Coca-Cola plate at the Coca-Cola store in Orlando.

Image source: Coca-Cola.

How Coca-Cola became an evergreen stock

Coca-Cola might initially seem like a risky investment because soda consumption rates have been declining worldwide. But over the past few decades, Coca-Cola reduced its dependence on its flagship carbonated sodas by developing and acquiring more brands of bottled water, teas, juices, sports drinks, energy drinks, coffee, and even alcoholic beverages. It also updated its sodas with smaller serving sizes, healthier versions, and new flavors to attract new customers.

That diversification and reinvention enabled Coca-Cola to consistently grow its organic sales while generating plenty of cash for dividends and buybacks. The company has raised its dividend annually for 60 straight years, making it a Dividend King -- a stock that has maintained that streak for at least five decades -- and it bought back nearly a fifth of its shares over the past 30 years.

Coca-Cola is still firing on all cylinders

Coca-Cola suffered a slowdown in 2020 as the pandemic's impact on restaurants and other foodservice customers offset stable retail sales. But its business recovered quickly in 2021, and that momentum continued throughout the first three quarters of 2022, even as the company suspended sales in Russia and grappled with COVID-19 lockdowns in China.

Metric

Q3 2022

Q2 2022

Q1 2022

2021

2020

Organic Revenue Growth (YOY)

16%

16%

18%

16%

(9%)

Comparable Operating Margin

29.5%

30.7%

31.4%

28.7%

29.6%

Comparable EPS Growth (YOY)

7%

4%

16%

19%

(8%)

Data source: Coca-Cola. YOY = Year-over-year.

For the full year, Coca-Cola expects its organic revenue to increase 14% to 15%, compared to its prior guidance for 12% to 13% growth. It expects comparable EPS to grow 6% to 7%, even after absorbing an estimated nine-percentage-point impact from unfavorable currency headwinds.

Coca-Cola's margins are still resilient

Coca-Cola's comparable operating margins declined year-over-year over the past two quarters. It mainly attributed that contraction to the acquisition of the sports drink brand BodyArmor last November, elevated operating costs, higher marketing expenses, and currency headwinds.

Metric

Q3 2022

Q2 2022

Q1 2022

2021

2020

Comparable Operating Margin

29.5%

30.7%

31.4%

28.7%

29.6%

Change (YOY)

(50 bps)

(100 bps)

40 bps

(90 bps)

170 bps

Data source: Coca-Cola. Bps = Basis points.

But as for inflation, Coca-Cola has been largely offsetting that pressure by raising its prices. During the third-quarter conference call, CFO John Murphy predicted Coca-Cola could leverage its scale to "sustain top-line growth with the ongoing inflationary backdrop," even though it was bracing for "another year of elevated inflation on a per-case basis next year."

CEO James Quincey also said Coca-Cola's "consumer elasticities in core categories have continued to hold up well," which suggests it still has plenty of room to leverage brand appeal to raise its prices. Therefore, the strong dollar -- which will likely continue to strengthen as interest rates continue to rise -- represents a more significant headwind to Coca-Cola's near-term margins than inflation, the invasion of Ukraine, or China's COVID lockdowns.

Is Coca-Cola still a great bear market buy?

Coca-Cola's stock still looks reasonably valued at 22 times forward earnings, and it pays an attractive forward yield of 3.2%. Its rival PepsiCo (PEP -0.15%), which sells packaged foods along with its drinks, trades at 24 times forward earnings and pays a forward yield of 2.6%.

Coca-Cola might lose its luster if inflation is reined in, interest rates stop rising, and the end of the bear market drives investors toward higher-growth stocks. But until that happens, Coca-Cola should remain an attractive stock to buy for investors who simply want to park their cash in a big blue-chip stock until the macroeconomic situation improves.