Should I buy Coca-Cola shares in October 2022?

The Coca-Cola Company (NYSE: K.O.) shares have weakened almost 10% since August 25, 2022, and the current price stands at $58.60.

The risk of further decline is still not over, especially if the U.S. stock market enters a more significant correction phase.

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The possibility of a global recession is looking increasingly likely

The second quarter of 2022 was quite positive for Coca-Cola, and the company reported revenue and profit higher than analysts’ consensus estimates.

Total revenue has increased by 11.9% Y/Y to $11.3 billion, which was $730 million above expectations, while the Non-GAAP earnings per share were $0.70 (beats by $0.03).

Although the company has a strong market position and high pricing power, Coca-Cola shares are not undervalued, and it is probably not the best moment to invest in this company.

Coca-Cola is a dividend aristocrat with six decades of consecutive payout increases, but the current dividend yield of 3% doesn’t seem attractive enough to accept the current yields, given intensifying global headwinds.

With a price-to-earnings (or “P/E”) ratio of 26.5, Coca-Cola is on the pricier side of the market, given that many companies on the U.S. stock market currently have P/E ratios under 15.

According price-to-sales ratio (market capitalization/revenues), Coca-Cola shares are trading at 6.82, which is more than two times higher than the price-to-sales ratio of PepsiCo, Inc. (NASDAQ:PEP), which is trading at a P/S of 2.84.

Coca-Cola trades at more than nineteen times TTM EBITDA, while PepsiCo trades at fifteen TTM EBITDA. To justify its current valuation, Coca-Cola would need to produce outstanding growth well in excess of the market, which will not be easy.

Both companies continue to report tremendous consumer demand for their beverage segments; still, it is important to mention that PepsiCo reported impressive growth in international markets of 55.78% in the second fiscal quarter, compared to Coca-Cola, which reported growth of 12.31% (this can be checked in Q2 reports).

In its upcoming earnings call for the third quarter which will be on October 26, 2022, Coca-Cola is expected to report revenues of $10.48 billion and earnings per share of $0.64, representing YoY growth of 4.38% for revenues and a decline of -1.81% for EPS.

On the other side, PepsiCo is expected to report revenues of $20.71 billion and earnings per share of $1.83, representing YoY growth of 2.58% and 2.31%.

Poor economic news also continues to keep investors in a negative mood, and if the U.S. stock market enters a more significant correction phase, the share price of Coca-Cola could be at much lower levels. The World Bank warned in a recent report that the possibility of a global recession is looking increasingly likely. The World Bank reported:

The global economy may face a recession caused by an aggressive wave of policy tightening that could yet prove inadequate to temper inflation. Policymakers around the world are rolling back monetary and fiscal support at a degree of synchronization not seen in half a century.

Technical analysis

The Coca-Cola Company shares have weakened almost 10% since August 25. The price has currently moved below the 10-day moving average, indicating that the bottom is still not reached.

If the price falls below $55 support, it would be a firm “sell” signal, and the next target could be strong support at $50.

On the other side, if the price jumps above $65, it would be a signal to trade Coca-Cola shares, and the next target could be resistance at $70.

Summary

Coca-Cola shares remain under pressure, and if the U.S. stock market enters a more significant correction phase, the share price could be at much lower levels. Coca-Cola is a dividend aristocrat with six decades of consecutive payout increases, but the current dividend yield of 3% doesn’t seem attractive enough to accept the current yields, given intensifying global headwinds.