As the U.S. equity market starts to settle from the euphoria and volatility of a New Year, this looks to be a good time to explore the options of a company that has been around for a very long time. Today, we will examine the options of The Coca-Cola Co (NYSE:KO). Coca-Cola with its market capitalization of $182.52B is a beverage company. The Company owns or licenses and markets more than 500 nonalcoholic beverage brands, primarily sparkling beverages but also a variety of still beverages, such as waters, enhanced waters, juices and juice drinks, ready-to-drink teas and coffees, and energy and sports drinks.
2014 was an uninspiring year for Coca-Cola as the company struggled to reward shareholders with gains across its top and bottom lines. For instance, the company was only able to return a measly 7% in 2014, compared to a 14.5% for the S&P 500. The uninspiring nature of the stock caused me to camp with the bears on the stock and I recommended KO put options in my last coverage of the stock.
About Turn on Coca-Cola
It seems that 2015 might turn out to be a radically different year for Coca-Cola in terms of profitability and returns to traders and investor as some of the company’s recent investments starts to pay off. Coca-Cola has been recording disappointing results on the heel of a change in consumer interest to carbonated soft drinks in favor of healthy alternatives. In fact, Coca-Cola has reported a consistent decline in the consumption level of its carbonated drinks for the ninth straight year in 2013.
Interestingly, the Coca-Cola management made some smart investments in 2014 in a bid to reposition the company in line with new consumerism trends. The two smartest investments that Coca-Cola made in 2014 were to obtain equity stakes in Keurig Green Mountain and to forge a partnership with Monster Beverage.
The long-term partnership deal signed with Keurig saw Coca-Cola purchasing an initial 10% stake in Keurig for $1.25B before it exercised the right to purchase additional stake to bring its equity to a 16% stake in Keurig outstanding shares. The deal with Keurig has the potential to assist Coca-Cola in diversifying away from its traditional soft drink market to the U.S. coffee and tea market.
In August, Coca-Cola announced that the purchase of a 16.7% stake in Monster Beverage for $2.15B. The deal saw Monster Beverage handing over some of its non-energy brands to Coca Cola in exchange for Coca-Cola’s energy drink brands and the use of Coca-Cola’s global distribution platform. It is expected that Coco-Cola will be able to jumpstart expansion into foreign markets for Monster Beverage products.
Thirdly, Coca-Cola is working on cutting costs in order to reduce overhead expenses and improve margins. The company has already announced the plan to save $2B annually by 2019 through cost-cutting initiatives and supply chain optimization. In line with the cost-cutting initiatives, the company has announced the cutting of 1600-1800 jobs globally.
How to Trade KO Options
The chart above shows how the shares of Coca-Cola have traded within the last one year. The stock has been rising modestly as seen it its rising support trendline (Green). However, the stock has a $44.5 resistance, which has been a ceiling on the stock around its 52-Week high of $45.00.
Coca-Cola is set to release its Q4 2014 exactly one week from today on February 10, and we can get to know if Coca-Cola is back to winning ways or otherwise. I recommend paying attention of the KO Apr 2015 43.000 call (KO150417C00043000) at an asking price of $0.68.
— Daily Option Alerts