Shares of Coca-Cola Consolidated (NASDAQ: COKE) — the largest bottler of products from The Coca-Cola Company as well as a bottler of other beverages — skyrocketed over $1,000 this morning after the company reported financial results for the first quarter of 2024 and announced a massive plan to repurchase shares. As of 10:20 a.m. ET on Monday, Coca-Cola Consolidated stock was up almost 16%.
A massive share repurchase plan
As far as growth goes, Coca-Cola Consolidated doesn’t really have any. Its first-quarter volume was down less than 1% year over year. And with slightly higher prices, its net sales rose 1%.
Regarding profitability, there was improvement in the company’s first quarter. Its operating margin was 13.1% in the prior-year period, but it improved to 13.5% in the first quarter. That’s good but hardly worthy of a massive 16% jump for the stock.
The real surprise today was Coca-Cola Consolidated’s announcement of a plan to repurchase up to $3.1 billion of its stock. For perspective, the company had a market cap of $8 billion before the announcement. Therefore, its buyback plan represented nearly 40% of the company, which is unheard of.
Buying back this much stock would greatly increase earnings per share (EPS). And that’s why the stock was up even though growth is quite modest.
Should the company make this move?
Coca-Cola Consolidated doesn’t have $3.1 billion just lying around, but management says that now is the right time to take on debt to reward shareholders.
In 2023, the company achieved more cash than debt for the first time in 40 years — a point that management made sure to highlight. Many companies, including Apple, have grown shareholder value by taking on debt. But for Coca-Cola Consolidated, it seems like taking on debt is a change from what management was prioritizing in recent years.
That said, at its size, the company could struggle to find avenues for growth, as evidenced by the quarter’s results. Therefore, growing its EPS will also be hard, and EPS growth often drives stock performance. With this in mind, reducing its share count might be the company’s best option for growing EPS at this point, so the move is understandable.
Should you invest $1,000 in Coca-Cola Consolidated right now?
Before you buy stock in Coca-Cola Consolidated, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Coca-Cola Consolidated wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $564,547!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of May 6, 2024
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.
Why Coca-Cola Consolidated Stock Skyrocketed Over $1,000 Per Share Today was originally published by The Motley Fool
Source: finance.yahoo.com