February update: should you buy or sell Coca Cola?

By: Invezz
February update: should you buy or sell Coca Cola?

Coca-Cola (NYSE: KO) shares have weakened more than 9% since the beginning of January, and the current share price stands around $49. Expectations of further stimulus lifted the U.S. stock market last week, but Coca-Cola shares remain under pressure.

Fundamental analysis: IRS could apply the same tax treatment to Coca-Cola for the tax years after 2009

Coca-Cola shares are trading again below $50, and the technical picture implies that the price could fall even more this February. Shares of this company remain under pressure since JPMorgan downgraded them after the U.S. Tax Court ruled in favor of the IRS, which determined that K.O. would owe ~$3.3bn in taxes for the tax years 2007 through 2009.

There are also risks that IRS could apply the same tax treatment to Coca-Cola for the tax years after 2009, and the amount, in this case, could be more than triple. JP Morgan assigned a $55 price target on Coca Cola due to the rising risk while remaining positive over a long term period.

“Longer term, we continue to like K.O. fundamentally, in particular its high beta to the reopening (~50% of global volumes sold on-premise). We believe this tax overhang may linger into a good part of 2021, and the company may be forced to place ~$3.3bn in escrow, which would be a cash outflow, besides a potential accounting provision,” reported JP Morgan.

Deutsche Bank also downgraded Coca-Cola to a “hold” rating from “buy” as the company’s business is still struggling to recover to pre-Covid levels. Deutsche Bank lowered its price target to $55 from $67 but believes that a U.S. Tax Court judgment is likely to be settled in the long term.

Analyst firm Guggenheim announced that maybe it is not the best moment to invest in Coca-Cola shares as the company is going through a transition year. “Coca-Cola returning to 5-6% organic growth post-Covid is attainable, in our view, but it’s more asset-light structure limits cost leverage that we estimate will ultimately confine EPS growth in the high-single digits range,” said analyst Laurent Grandent from Guggenheim.

Technical analysis: Coca-Cola shares remain under the pressure

Coca-Cola shares are trading again below $50, and according to analysts, maybe it is not the best moment to invest in Coca-Cola. The technical picture implies that the price could fall even more this February, and the coronavirus Covid-19 pandemic still impacts the company’s business.

Data source: tradingview.com

The important support levels are $48 and $44, $52 and $55 represent the resistance levels. If the price jumps above $52, it would be a signal to trade Coca-Cola shares, and we have the open way to $55.

On the other side, if the price falls below $48, it would be a “sell” signal, and we have the open way to $46 or even $44 support.

Summary

Analysts lowered their price target on Coca-Cola shares after the U.S. Tax Court ruled in favor of the IRS, which determined that K.O. would owe ~$3.3bn in taxes for the tax years 2007 through 2009. According to analysts, maybe it is not the best moment to invest in Coca-Cola, and the technical picture implies that the price could fall even more this February.

The post February update: should you buy or sell Coca Cola? appeared first on Invezz.

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