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Michael Fowlkes' Analyst Insights

Options and ETF Analyst Writer
Michael Fowlkes
Author Bio


July 25, 2016 - Coca-Cola Will Release its Q2 Results July 27

What's Happening

Soft-drink giant Coca-Cola (KO) is scheduled to report its second-quarter results before the market open on July 27. Analysts forecast earnings of $0.58 per share, down from $0.63 during the same period last year. The stock has been stuck in a sideways trend over the last three months, but remain up 6.2% on the year.

Technical Analysis

KO was recently trading at $45.62, down $1.51 from its 12-month high and $9.06 above its 12-month low. Overall technical indicators for KO are neutral and the stock is in a weak upward trend. The stock has recent support above $43.30 and has recent resistance below $45.95. Of the 16 analysts who cover the stock, five rate it a "strong buy", one rates it a "buy", eight rate it a "hold", one rates it a "sell", and one rates it a "strong sell". The stock receives S&P Capital IQ™s 3 STARS "Hold" ranking.

Analyst's Thoughts

Coca-Cola has done a decent job navigating a tough market, but earnings have been falling, and are expected to do so once again for the company’s second-quarter. A shift away from sugary soft-drinks in the U.S. has hurt the company, but it has managed to partially offset the impact by growing other business segments. While earnings have been on the decline, the company has been able to top analyst estimates for each of the last six quarters, and better than expected revenue the last two quarters. The strong dollar has also weighed on the stock. Coca-Cola previously said that last year’s total revenue would have risen 3% if the dollar remained unchanged, but with the dollar’s strength, its revenue actually fell by 4% during the year. The strong dollar likely hurt the company during the recent quarter once again, but its impact has already been priced into the stock, so as long as the company is able to hit the street’s estimate the stock should move higher. KO has been stuck in a sideways pattern since the start of May, partially due to a P/E of 27.5. The valuation is likely to limit the upside on a positive earnings beat, but a solid report should send the stock higher, and possibly drive shares above the 52-week high.

Stock Only Trade

If you're looking to establish a long stock position in KO, consider buying the stock under $45.50. Sell if it falls below $41.00 or take profits if it gets to $52.25.

Bullish Trade

If you want a bullish hedged trade on the stock, consider a November 37/42 bull-put credit spread for a 35-cent credit. That's a potential 7.5% return (23.0% annualized*) and the stock would have to fall 7.2% to cause a problem.

Bearish Trade

There are no bearish trades with enough downside protection to warrant a hedged trade at this time.

Covered Call Trade

If you like the stock, but wish to lower your cost basis on a new position, you may want to consider a November $46.00 covered call. Buy KO shares (typically 100 shares, scale as appropriate), while selling the November $46.00 call for a debit of $44.45 per share. The trade has a target assigned return of 3.4%, and a target annualized return of 10.5% (for comparison purposes only).

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