2018 Bull/Bear Outlook for Coca-Cola: A Little Expensive, but Worth It?

Companies and Brands

Published: January 5, 2018 10:20 am

Last Updated: January 12, 2020 4:48 am

With 2017 squarely in the rear-view mirror, investors have to prepare for what 2018 has to offer. This raging bull market is now nearly a decade old, and it has been the strongest bull market that most investors have ever seen. The Dow Jones Industrial Average rose 25% and the S&P 500 rose by almost 19.5% in 2017. Wall Street is by and large calling for tax reform and growth of earnings gross domestic product to push the stock market gains in 2018.

24/7 Wall St. just came out with its annualized forecasting tool showing that DJIA at 26,400 and at least 2,855 on the S&P 500 are the baseline targets for 2018.

Credit Suisse is now targeting 3,000 and Oppenheimer is targeting 2,900 for the S&P 500 in 2018. At the end of 2017, the forward valuation for the S&P 500 Index was 18.5 times to 19.0 times expected earnings per share.

Coca-Cola Co. (NYSE: KO) was one of the subpar Dow stocks in 2017, and this coming year doesn’t look that much better. The trailing price-to-earnings (P/E) ratio is about 44, but Coca-Cola is valued at roughly 23 times expected 2018 earnings. And Wall Street is expecting an annualized dividend hike to just over $5.00 per share later in 2018.

Coca-Cola’s trailing P/E ratio ranks third highest on the Dow, while its forward P/E ratio ranks at number seven. This makes a solid case for the stock being overvalued, but what are analysts calling for?

The consensus analyst price target is set at $49.22, implying a return of 7.3% for 2018. However, including the dividend yield of 3.26%, the total return for 2018 is closer to 10.6%.

So while the valuation might be more on the expensive side, analysts are calling for this stock to make a handy gain in 2018. In fact, Coca-Cola has one of the highest expected returns in 2018 out of the entire Dow.

24/7 Wall St.
2018 Bull/Bear Outlook: How All 30 DJIA Stocks Will Take the Market to 26,400 or Higher

Looking ahead, we can expect Coca-Cola to report its fourth-quarter financial results in February. The consensus estimates from Thomson Reuters are $0.39 in earnings per share and $7.39 billion in revenue. The same period of last year reportedly had $0.37 per share and $9.38 billion.

Coca-Cola has a 52-week trading range of $40.22 to $47.48 and a market cap near $196 billion. Its weighting in the Dow is about 1.26%, but the rank is roughly 26th of the S&P 500.