Whenever you’re considering owning a stock, it’s generally a good idea to check out the company’s investor presentation. Usually it will be rife with factoids and infographics. In the case of Coca-Cola (NYSE:KO), though, you’ll actually get a manifesto on the global post-pandemic economic recovery. Okay, that’s a bit of an exaggeration. But it still gives us insight into how KO stock might be affected heading forward.
You might find in the company’s corporate materials more than the usual corporate jawboning and ad copy. Is it possible that Coca-Cola’s vision extends beyond tooth-decaying drinks?
Indeed, it does. Nothing less than a multi-phase road map to recovery is encompassed in the beverage giant’s post-pandemic scenario. Does this bode well for KO stock? Hopefully a deeper dive into Coca-Cola’s version of a “new reality” will shed light on the prospects of a return to calmer, better times.
The Iconic Brand vs. the Battered Consumer
High unemployment, shelter-in-place mandates, and social distancing add up to bad news for the consumer. And what’s bad for the consumer is, by and large, worse for the businesses that depend on consumption.
That being said, Coca-Cola’s business model enables the company to withstand adverse economic conditions better than many other companies. In the words of CEO James Quincey, “The power of the Coca-Cola system is our greatest strength in times of crisis.”
To a great extent, KO stock’s relative resiliency during economic recessions is what appeals to shareholders. It’s the type of stock that’s intergenerational, allowing it to be held for years or even decades without worry.
And throughout those decades, shareholders can collect dividend payments on KO stock. A number of companies, including some in the S&P 500 large-cap index, have cut their dividend payments altogether. Meanwhile, KO shares offer a forward annual dividend yield of 3.48%.
Besides, even when the consumer is economically weathered and worn, they can still enjoy a soft drink. Folks might have stopped going to restaurants and hotels for a while, but they didn’t stop going to supermarkets. And, their kids didn’t stop craving sugary beverages.
Envisioning the Next Phase
That’s all common sense, more or less. So, here’s where the narrative goes off the beaten path. Coca-Cola mapped out a three-phase plan of recovery, not only for the company but by extension, for the broader consumer-driven economy.
It’s ambitious and uncharacteristically visionary for such a traditional, pragmatic company. Still, prospective investors should be willing to pursue this unusual thought experiment to see if it passes muster.
Let’s pop open a Coke and take a ride, shall we? The first phase, according to Coca-Cola, is “Phase 1: Outbreak.” This involves heavy lockdowns, massive pantry loading, social distancing and, therefore, a steep decline in consumption.
China is probably fully past that stage, and America is somewhat through with Phase 1. The sequel is “Phase 2: Gradual Reopening.” The characteristic signs of this stage include “Overall Improving Trends in
Consumption” as well as the “Gradual Reopening of Away-From-Home Channels.”
What was/is Coca-Cola’s action plan for Phase 2? In summary, it includes a “Strong focus on Core Brands,” which sounds reasonable enough. Encouragingly, the company also observed during this phase an “Upsurge in … [its Chinese] e-comm business, +50% increase for Q1 ’20.”
That’s not exactly shocking as it’s common knowledge by now that e-commerce activity has spiked since the Covid-19 outbreak. Still, Phase 2 remains a work in progress as the “[n]umber of active customer outlets improve, but [are] still well below pre-crisis level.”
Here Comes the Anticlimax
Phase 3, optimistically titled “New Reality” is probably everyone’s favorite. Here, fear and uncertainty subside, while the behavioral shift to e-commerce remains intact. Sounds terrific, doesn’t it?
So, are you eager to hear Coca-Cola’s action plan for this “New Reality”? If so, then you’ll be awfully disappointed. In the space where that’s supposed to go, there’s a big fat question mark.
No, I don’t mean that the verbiage is evasive or data-impoverished. I literally mean that Coca-Cola put a large question mark in the column for Phase 3: The New Reality. That’s where the road map ends, evidently.
Should we give Coca-Cola points for humility? For what it’s worth, knowing what you don’t know is commendable. Either way, Coca-Cola’s considerable and enduring brand power will see it through these crazy, hazy times we’re all stuck with.
The Takeaway on KO Stock
In the final analysis, Coca-Cola doesn’t need to know exactly what the future will look like. It just needs to keep on serving sweet, addictive beverages to restless, locked-down families.
With a business model like that, the company will survive Phases 1 through 3 and beyond, and so will KO stock and its shareholders.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, he did not hold a position in any of the aforementioned securities.