Defensive Stock... Bracing For Coca-Cola Earnings (KO, PEP)

Thursday morning we will get earnings from The Coca-Cola Company (NYSE: KO), and this will likely be the big set-up play for Friday’s Pepsico, Inc. (NYSE: PEP) earnings.  We have prepared a detailed  preview for Coca-Cola’s earnings.
Coca-Cola is expected to earn $0.61 EPS and $7.52 billion in revenue, according to First Call.  For the coming quarter estimates are for $0.66 EPS and $7.32 billion in revenue; and for fiscal-2009 the consensus estimates are $3.19 EPS and $33.07 billion in revenue.

Options traders appear to be prepared to a move of more than $1.50 in either direction.

Coca-Cola’s shares have fallen since Friday.  The stock is now trading within spitting distance of its lows of last October and November.  For whatever it is worth, the 5-year lows are between $38.00 and $39.00.

This is supposed to be one of the go-to defensive stocks.  Yet, most analysts have been backing off on their ratings.  The average target is around $52.00, 25% higher than today.  Long-term estimates have only come down marginally over the last 3 months.  That is odd considering that multi-nationals have been claiming the dollar’s strength is eating into profits from overseas operations.

The latest data shows Coca-Cola trading at an expected 3.1-times 2008 revenue and 3-times expected 2009 revenue.  Coca-Cola also is valued at 13.9-times 2008 expected earnings and 13.6-times 2009 expected earnings.  Pepsi is valued at  14.6-times 2008 expected earnings and 13.9-times 2009 expected earnings.

These two are very similar but Pepsi has the snack food business that changes the mix.  Coca-Cola will likely influence what is expected from Pepsi on Friday.

Jon C. Ogg
February 11, 2009