Shares of soft drink company Coca-Cola (KO +0.86%) were slammed last week as investors were spooked over news that the growing popularity of weight loss drugs could negatively impact sales of food and beverages. The rough week for the stock adds to an already challenging year, leaving shares down a total of about 17% in 2023. Making things even worse, this compares to a return of approximately 12% for the S&P 500 during this same period.
But this may be one of those times that famed investor Warren Buffett's advice to be greedy when others are fearful makes sense. Though Coca-Cola's stock price trend this year may paint a bleak picture, the business is actually doing quite well. Indeed, Coca-Cola used its second-quarter update in July as an opportunity to increase its full-year financial guidance, reflecting management's confidence in its business.
Here's a closer look at the stock and why investors might want to consider buying shares today.
NYSE: KO
Key Data Points
Impressive growth
The enduring nature of Coca-Cola's business alone is enough for the stock to trade at a premium valuation. It consistently supplies beverages to many of the world's biggest restaurant chains and its brands are arguably recession-resilient. But this isn't the only reason to like this stock. The strong growth of its underlying business is impressive, too. Coca-Cola's organic adjusted revenue increased 11% year over year in Q2 while its non-GAAP earnings per share rose by the same amount.
Looking ahead, Coca-Cola expects a good second half of 2023, too. Management said in its second-quarter update that it expected full-year organic revenue to increase at a growth rate between 8% and 9%. It expects non-GAAP EPS growth of 5% to 6% during this same time. These ranges are up from previous guidance for 7% to 8% organic revenue growth and non-GAAP EPS growth of 4% to 5% during 2023.
Even with an enduring business and good business growth during an uncertain macroeconomic environment, Coca-Cola's price-to-earnings ratio currently sits slightly below 22 at the time of this writing. This is an attractive price for a company with a history of consistent growth, financial discipline, and prudent capital allocation.
A solid balance sheet
The company's balance sheet is also worthy of appreciation. Coca-Cola's net debt is only about two times its annual net income -- a much better ratio than many other stocks with dividend yields of 3% or greater, like many utilities stocks. Coca-Cola's balance sheet is built to weather the worst of recessions with ease. Putting the strength of its balance sheet into context, the company could likely pay off all of its debt in just two years or less if it really wanted to.
Speaking of Coca-Cola's dividend yield, it currently amounts to about 3.4%. This crushes the average dividend yield of 1.6% for stocks in the S&P 500. A dividend yield this robust helps offset some of the risk investors face from stock price volatility. Further, Coca-Cola's dividend has a long history of growth, boosting its payout every year for 61 years straight. With such a strong balance sheet, investors have every reason to expect Coca-Cola to continue increasing its dividend annually for years to come.
Overall, Coca-Cola stock looks like a compelling long-term investment opportunity today.
