Coca-Cola Co. (KO, Financial) has surprisingly outperformed expectations once more as it strolled past its first-quarter earnings results. Despite economists' negative outlook on the consumer goods space, the company's prospects are arguably bright.
Earnings beat and organic growth
Coca-Cola beat its first-quarter earnings estimate by 6 cents per share. Additionally, the company's revenue surged past its target by $670 million. Driving the growth was organic sales, which increased by 18% during the quarter. Furthermore, the company's sales skyrocketed by 39% in Latin America and 22% in Europe. The company's global presence allows it to smooth out top-line earnings, which means it's not bound to a single set of monetary or fiscal policies.
Another plus for Coca-Cola is its economies of scale. A 61% gross profit margin means it can pass through higher input costs with more ease than many of its competitors.
Additionally, a favorable marginal cost of production could separate Coca-Cola from other consumer goods. There's also an argument that its flagship product is a staple rather than a discretionary good, meaning it could be less cyclical.
Key metrics
The first matter that strikes the eye is that Coca-Cola has sorted out its supply chain issues with its days of inventory improving dramatically since the turn of the year.
Apart from this, Coca-Cola exhibits impressive style factors, with its profitability leading the way, as illustrated by the return on equity of 45.62% and return on invested capital of 12.52%. The latter of the two metrics suggests the company is holding a competitive advantage in the market, while the prior indicates it exhibits a good balance of leverage, profit margins and asset utilization.
Coca-Cola also seems undervalued from a normalized price-earnings perspective. The ratio is trading at a 37.73% discount relative to its five-year average, suggesting that a value gap could be present.
Dividend analysis
Coca-Cola can't be faulted for its treatment of shareholders. The company's 0.75% payout ratio, a dividend growth rate of 3.66% and a forward yield of 2.67% arguably mean that it's a best-in-class dividend pick. Moreover, Coca-Cola's 2.24 times cash per share ratio suggests that future dividend safety is well secured.
The bottom line
Coca-Cola is a well-rounded stock with the potential to provide investors with multiyear returns. I'm not concerned about economic cyclicality, as I believe that the company's organic growth and efficiency will trump most systemic headwinds. This is undoubtedly a lucrative total return play.
