Should you buy Buffett favourite Coca-Cola as it nears BodyArmor acquisition?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Oct 29, 2021
  • Coca-Cola shares on Friday edged slightly higher amid progress in BodyArmor acquisition.
  • Bloomberg reported the beverage company was nearing an agreement with the soft drinks maker.
  • The acquisition would give Coca-Cola a 23% share of the sports drink market.

On Friday, Coca-Cola Co. (NYSE:KO) shares advanced slightly after reports emerged suggesting the company is closer to sealing a deal to buy BodyArmor. The company wants to boost its sports drink business by buying a controlling stake in the sports drink maker. The $8 billion deal according to Bloomberg would give Coca-Cola a 23% share of the sports drink market.

However, this will still be too low compared to local rival PepsiCo Inc.’s (NASDAQ:PEP) share of 68% through its subsidiary Gatorade, the publisher cites a report from Euromonitor.

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Coca-Cola reported its most recent results on Wednesday beating the consensus analyst estimates on earnings. The stock gas advanced significantly to trade closer to current 52-week highs.

Is it too late to buy KO shares?

From an investment perspective, Coca-Cola shares trade at reasonable trailing 12-month and forward P/E ratios of 27.69 and 23.13, respectively. Therefore, given Friday’s reports, value investors could be intrigued to buy.

On the other hand, analysts expect its earnings per share to grow at an average annual rate of about 10% over the next five years, making it an exciting option for growth investors.

However, after rallying closer to the current 52-week highs, it could be too late to buy KO shares.

Source – TradingView

Technically, Coca-Cola stock seems to be trading within an ascending channel formation in the intraday chart. As a result, the stock has rallied closer to overbought conditions pushing the price towards the trendline resistance.

Therefore, investors could target potential pullbacks at about $54.77, or lower at $52.68. On the other hand, $57.97 and $59.92 are crucial resistance zones.

Time for profit-takers to pounce?

In summary, although Coca-Cola shares present an exciting outlook amid its plans to buy BodyArmor, the stock seems to have rallied closer to overbought conditions, thus creating a perfect opportunity for a pullback.

Therefore, it could be a good time to take some profits off Coca-Cola shares before buying again when the price hit a crucial support level.

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