Written by Thomas Hughes
Coca-Cola Company (NYSE: KO) struggled with FX conversion in Q2 but navigated difficult times with aplomb, setting its stock up to move higher and set a new all-time high. The critical details are that price, mix, and timing of sales offset the weaknesses, paving the way for a guidance increase. The guidance expects another 100 basis points of top-line growth and a widening margin, which should be enough to keep the analysts happy. As it is, MarketBeat tracks 11 analysts with current ratings, and they are leading this market to a new high. Analysts' activity in the two months before the Q2 release includes numerous price target increases and an initiated coverage, leading this market to the high end of the expected range or a gain of at least 5%. Because the 5% gain puts the stock at a new all-time high, it is the likely beginning of a rally that could last well into next year. Coca-Cola Has Industry-Leading Quarter: Raises Guidance Coca-Cola issued some mixed results, but the underlying details are strong. The company’s $12.4 billion net revenue is up 3.3%, leading its largest competitor, PepsiCo (NASDAQ: PEP), by hundreds of basis points despite the impact of FX conversion. The top-line outpaced the consensus by 550 basis points on a 2% increase in global unit case volume. Organically, the company grew by 15%, with the reported top and bottom-line results impacted by FX translation. Organic growth drivers are a 9% increase in price/mix compounded by a 6% increase in concentrate sales. Regionally, all segments produced organic growth, but currency headwinds sapped strength from APAC, Global Ventures, and Bottling Investments, which produced the weakest results, down 25% YoY. Latin America, the strongest segment, grew by 20%. The margin news is good. The company’s pricing efforts in inflation-hit economies are helping to sustain a solid margin. While GAAP results are down YoY, the adjusted operating margin is up 80 bps, producing leverage growth on the bottom line. The adjusted EPS of $0.84 is up 7% compared to last year and outpaced consensus by 370 bps, leading the company to raise guidance. Coca-Cola improved its guidance for revenue and earnings, now calling for 9% to 10% organic revenue growth and 5% to 6% EPS growth or about $2.84 compared to the $2.82 consensus forecast. The Coca-Cola Company Can Sustain Its Capital Return Growth Among the salient details from the Coca-Cola report are that free cash flow remains solid, the balance sheet is healthy, and capital returns are safe. Capital returns include the dividend and share repurchases, which reduced the count by 1% average for the quarter. The dividend is losing some appeal with share prices rising, but the yield is still more than 100% better than the average S&P 500 company, with shares equally valued near 22x, and the distribution is growing. Investors may not expect robust double-digit increases, but the outlook for earnings growth and share repurchases suggests that a mid-to-high single-digit CAGR is possible and sustainable. The last increase was worth 6.5% to investors, and the subsequent increase is due March 2025. Coca-Cola Bubbles to Fresh Highs The Q2 report catalyzed the KO market to move higher. Early premarket activity has the stock up nearly 2% and trading at what would be a fresh, two-year closing high if held until the end of the session. Assuming the market follows through with this indication, shares of KO could retest or exceed the all-time high within a matter of weeks. In this scenario, a move to a new high would break the market out of an almost three-year trading range and open the door to a sustained rally. 
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Written by Gabriel Osorio-Mazilli
Investors should now be familiar with the story behind so-called “meme stocks.” These are companies considered not that great by hedge funds and savvy investors who bought into the technology sector, so they naturally carry large short interest due to the number of short sellers who take on their bearish views. What ends up happening is a management stunt to send the stock rallying and cause what’s known as a short squeeze, otherwise known as an astronomic rally. The latest example of this sequence is the GameStop Corp. (NYSE: GME) saga, where the stock more than tripled in price due to a Twitter (now X) user posting his bullish thesis on the stock, and that was enough to trigger a wave of retail investor buying to spark a short squeeze. Following suit, today, investors face another halt in trading due to a sudden upside move in shares of AMC Entertainment Holdings Inc. (NYSE: AMC), as a new announcement from management sent the stock rallying by more than 10.9%. As the stock was halted until investors may want to check in to see what is happening behind the scenes to make a better-educated guess about the stock’s direction. It all starts with what the announcement implies: a debt restructuring that might help the company buy some time and get its house in order. The Deal Terms Boosting AMC Stock's Rally Some investors may recall a similar strategy used by Carvana Co. (NYSE: CVNA) management when it swapped some of its long-term bond obligations for convertible bonds. This allowed creditors to unburden the company, let its operations thrive, and enjoy better upside through equity ownership. AMC management took a page out of the Carvana playbook recently, as SEC filings show the transaction deal specifies that up to $2.45 billion in debt maturities will be extended from their current maturity of 2026 to 2029, allowing for more breathing room for the stock to maneuver past the nearing maturities calling for available cash on hand to repay. In addition, the company has invested up to $464 million in convertible bonds. These bonds not only reduce the company's debt burden but also allow creditors to convert their debt into shares and enjoy the upside (if any) of the company's future. Once Carvana issued the same strategy behind convertible bonds, markets were accepting enough to stampede into the stock and bring it to a nearly six-fold rally in the 12 months that followed. Far from assuming that history will repeat itself, investors can look deeper into the company's financials to either justify or dismantle the prospects of a continued rally. AMC Stock: Financial Drivers Investors Can't Ignore When investors examine the company's latest quarterly earnings, slightly flat annual revenues are the most minor threat to this potentially short-lived rally. AMC reported yet another quarter of net losses, with $163.5 million lost this quarter, compared to a net loss of $235.5 million a year prior. But it doesn't stop there. Savvy investors will ask about cash flows since net income is easily manipulated through "creative accounting." Operating cash flows were nonexistent, as AMC reported a net outflow of $188.3 million this quarter, compared to $189.9 million a year prior. Investors can land on free cash flow measures by taking out the needed capital expenditures to keep the business running and movies showing. This quarter's negative free cash flow of $238.8 million, compared to $237.3 million a year prior, shows worsening conditions in the underlying business operations.https://www.marketbeat.com/originals/amc-entertainment-time-to-take-step-back-into-this-meme-stock/ The question is, how does AMC keep running if it doesn't make any money? The answer is dilution since nobody is readily looking to buy its debt. Last time there was a meme stock run, AMC management took advantage of the high stock price to issue expensive stock into the market and fund its ongoing operations. While buying up to three more years in the timeline that AMC faces before it needs to pay up for its bonds can be a good thing, investors who now have the option to convert their bonds into stock need to have a very good reason for doing so. Without any earnings or free cash flow to show, converting might not even be a consideration for most. Even with the new restructuring, Wall Street analysts know better than to expect a short squeeze or a similar run to Carvana stock when it applied the same strategy, as that company at least had a plan – and path – to achieve free cash flow. Citigroup analysts still see a price target of $3.2 for AMC stock, calling for an up to 40% downside from where the stock has rallied today. Even more recent analyst ratings: As of July 2024, Macquarie analysts see only a $4 valuation on AMC stock, still expecting a 24.5% downside from today's prices. Why is Warren Buffett, Jeff Bezos, Michael Bloomberg, "The Walmart Family", Bill Gates, and 48 members of Congress shifting their stocks in a frenzy? Go here now to see the full details.
Written by Gabriel Osorio-Mazilli
The market seems so sure about what will happen in the next few quarters that the volatility index (VIX) has remained near 2018 levels for most of 2024. However, uncertainty often creeps up in certain stocks, and what’s more volatile today than the technology sector? After stellar runs in stocks dealing with artificial intelligence, like NVIDIA Co. (NASDAQ: NVDA) and others, any news that discredits an otherwise bright and perfect future could send a stock crashing down instantly. That is the case with CrowdStrike Holdings Inc. (NASDAQ: CRWD), as a recent incident has caused its shares to plummet by over 20% in the past few trading days. The reason behind the price action is a bug that acted up within the company’s systems, causing a global shutdown in global services that relied on the company. For example, New York’s Times Square experienced blacked-out digital billboards, and airlines had to cancel hundreds of flights due to system shutdowns. Despite this recent fiasco, it looks like markets are still willing to bet in favor of a recovery and outperformance this year. Why Event-Driven Discounts Are a Smart Move for Investors As long as an event-driven discount doesn't mean that the company is forever changed or going bust, these events often create short-term discounts that many miss out on because of fear. However, many others in the market do come in to squeeze the opportunity before it is corrected. One example is Warren Buffett's purchase of American Express (NYSE: AXP) after the company suffered fraud in the 1963 salad oil scandal. Knowing that this fraud had nothing to do with American Express's core operations and had no effect on the company's brand and market penetration worldwide, it was an easy buy for Buffett. CrowdStrike may have just gone through its own version of this scandal. The good news is that a fix is nearly implemented, so the crisis has been averted to send CrowdStrike to business as usual. This is good news for the over 29,000 subscription-based customers who rely on the company for their cybersecurity needs. Among these customers are electric vehicle giant Tesla Inc. (NASDAQ: TSLA) and software behemoth Microsoft Co. (NASDAQ: MSFT). This is sort of when Buffett realized that many giants were reliant on American Express, increasing the odds of the storm passing by sooner rather than later. Markets Stick by CrowdStrike Stock Amid Volatility Outside of price action, which has seen double-digit selloffs in the past couple of days, there are other metrics investors can use to decrypt how the market really feels about CrowdStrike stock moving forward. The good news is that these metrics haven’t changed. Investors have two main ways to gauge a stock’s potential future. The first is by checking the forecasts for earnings per share (EPS) growth. In the case of CrowdStrike, Wall Street analysts still expect to see EPS growth of 55.6% in the next 12 months. This compares to peers like Datadog Inc. (NASDAQ: DDOG) and its 25% EPS projections or Zscaler Inc. (NASDAQ: ZS) and its expected contraction in EPS for next year. CrowdStrike’s forecast is even above Fortinet Inc. (NASDAQ: FTNT), and its forecast is for 9.5% EPS growth in that name. Moving onto the second metric, investors should check how markets feel about these forecasts through the forward price-to-earnings (Forward P/E) ratio. Checking for a premium is key, as markets will typically pay more for a stock that they believe will be a winner. Knowing this, investors will be pleased to see CrowdStrike trade at a 55.0x forward P/E multiple. This valuation commands a premium of 81% over Fortinet’s 30.3x multiple (a closer comparable based on size). But, there is one more metric investors should consider, particularly for software companies. That metric is the price-to-book (P/B) ratio. CrowdStrike stands out again, trading at massive premiums above the entire computer sector. A 31.6x valuation means CrowdStrike is trading nearly three times the 6.9x valuation for the rest of the peer group, so markets still have faith in the stock recovering. Analysts at Canaccord Genuity Group recently reiterated their buy rating for the week, which is a trading day after the bug incident. Their price target is $405 a share for CrowdStrike stock, daring it to rally back and deliver a 53.1% run from where it has sold off to today.
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