Coca-Cola's Q3 earnings of 83 cents per share beat the First Call Q3 EPS consensus estimate of 82 cents per share, and, of course, Wall Street drove the shares lower on the morning of the announcement. Most likely, the above selling stems merely from short-term institutional investors (IIs) exiting the stock, which is why I'm reiterating my Buy rating for The Coca-Cola Company (NYSE: KO), first recommended on February 15, 2009 at a price of $42.68.
Further, the Q3 revenue miss of $8.04 billion vs. First Call's $8.11 billion was statistically neutral or flat. Now, in normal times flat revenue would be a negative, but under these U.S. and global economic conditions, flat is just fine. KO's long-term global revenue growth targets are still attainable, as North America revenue (down 4% in Q3) rebounds, and catches up with Latin American and Pacific region revenue gains (up 7% and 6%, respectively, in Q3).
The First Call FY2009/FY2010 EPS estimates for KO are $3.06 to $3.37. The $3.37 estimate for FY2010 will likely prove to be conservative.
Technically, Coca-Cola's stock chart is beautiful -- a strong uptrend, with minor, constructive pull-backs, and a price that continually stays above the 50-day moving average. Ignore the short-term IIs: there are many more long-term IIs adding to their positions. Hence, view Tuesday's pull-back as a Buy opportunity.
Stock Analysis: Coca-Cola is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% position in KO now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your KO position before December 2009. Sell/Stop Loss if you were to buy shares in this company: $27.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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