Coca-Cola Sees Solid Growth Ahead. Can the Stock Finally Break Out of Its Trading Range?

While Coca-Cola (NYSE: KO) has been putting up solid organic revenue growth the past few years, its stock has largely been range bound. In fact, its stock price is up only about 15% over the past five years, as of this writing. However, the stock got a bit of a boost following its fourth-quarter earnings report and is now up around 10% year to date.

Let's take a close look at the company's Q4 results and guidance to see if the stock may finally break out of its trading range.

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Pricing power powers results

Pricing power was once again behind Coca-Cola's solid results, with some modest case volume growth thrown in. For the quarter, the company's organic revenue -- which excludes the impact of acquisitions, divestitures, and currency movements -- jumped 14%.

Its revenue was driven by a 9% jump in price and customers buying a more expensive product mix, with approximately 4% of the increase coming from markets experiencing intense price inflation. Meanwhile, unit case volumes rose by 2%, led by gains in the U.S., China, and Brazil. Coca-Cola Zero Sugar was a standout, with unit volumes growing 13% in the quarter. Overall concentrate sales rose by 5%

Geographically, prices/mix in North America climbed by 11%, with unit volumes up 1%. The company called out its namesake Coca-Cola brand, protein shake, and ultra-filtered milk brand Fairlife, and limited time offerings such as Sprite winter spiced cranberry for the solid performance.

Prices/mix in EMEA (Europe, Middle East, and Africa) rose by 11%, with unit volumes flat. Latin America saw price/mix soar 23%, but more than half of that was due to the impact of inflationary pricing in Argentina. Unit case volumes in the region rose 2%. Asia Pacific saw price/mix decline 5% due to an unfavorable product mix (meaning customers were being more price-conscious and, hence, bought the cheaper products from among Coca Cola's offerings). However, unit volumes still jumped 6%.

Overall revenue in Q4 rose 6% to $11.54 billion, which easily topped the $10.68 billion consensus compiled by LSEG (formerly Refinitiv). Adjusted earnings per share (EPS) climbed 12% to $0.55, topping the $0.52 consensus.

Source: Company filings and press releases.

Coca-Cola said that it saw market-share gains across its beverage portfolio in 2024. It called out strong gains in sparkling soft drinks, value-added dairy (Fairlife), and tea.

Looking ahead, Coca-Cola forecast organic revenue to grow by 5% to 6% in 2025. However, it is expecting a 3% to 4% currency headwind. It is looking for adjusted EPS to increase by 2% to 3%, or 8% to 10% excluding currency impacts. It is expecting to generate $9.5 billion in free cash flow. For the first quarter, it noted that it will see headwinds from both currency and divestitures, as well as the quarter having two fewer days.

Overall, the company is expecting price to once again lead the way in driving growth in 2025, with some volume gains. It is looking for some of the intense inflation it has seen in some regions to moderate. Meanwhile, it will continue to focus on marketing and innovation to help drive results.

Image source: Getty Images.

Is the stock a buy?

Coca-Cola has consistency shown its strong pricing power, which comes from being one of the most recognizable brands in the world. Decades of marketing have helped create brand equity that is extremely valuable and difficult to duplicate. Meanwhile, while overall volume growth remains modest, the company continues to gain share in key categories. The combination of pricing power and modest volume growth should continue to power its earnings.

At the same time, the company is seeing strong growth in certain areas. Coca-Cola Zero Sugar has been a nice winner, while Fairlife has been one of the company's strongest growers in the U.S. Fairlife's ultra-filtered milk has been a huge success, as the filtering process increases its protein while reducing sugar and eliminating lactose. It's become popular in both fitness circles as well as with people taking GLP-1 weight loss drugs who are encouraged to consume more protein.

The company does face some potential tariff headwinds, with a 25% increase on aluminum set to impact its costs in materials. However, the company does have some flexibility with packaging and can transition more to plastic bottling.

The stock currently trades at a forward price-to-earnings (P/E) ratio of just above 23 times. That's a level similar to the slightly lower mark it has traded at in recent years.

KO PE Ratio (Forward) data by YCharts.

Coca-Cola is doing a good job of adjusting to changing taste preferences, while its global brand equity is undeniable. It has some potential growth opportunities with emerging brands like Fairlife, as well as with its recent ventures into partnerships with alcohol producers. Meanwhile, I'd like to see the company get into the "better-for-you" category and compete against or buy a brand like Olipop or Poppi, as this is another strong area of growth.

While the stock has been range bound for a while, it should be able to start to grow out of that range at its current valuation and growth profile. As such, investors with a long view can consider adding the stock here.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.