Coca-Cola’s stock is only now starting to rally.
“We see the firm going into FY22 stronger for the following four reasons: 1) the strong emerging markets even with the low vaccination rates, 2) on-premise recovering more quickly than was originally forecasted, 3) portfolio rationalization and restructuring led to a more agile and focused organization, and 4) gross margin is benefiting from the incidence model. Also, the valuation is pretty compelling in light of enhanced fundamentals with a great line of sight for the company’s EPS to see a 12% CAGR growth through FY23 hitting $2.71 that year, with possible divestiture of bottling assets,” explained Guggenheim’s Laurent Grandet.
Grandet increased his rating for Coca-Cola to Buy from his previous Neutral rating with a new price target of $66. He also raised his earnings predictions on Coke for the next few fiscal years.
Coke’s shares increased 1% to $59.86 this week.
The analyst’s call has come as Coke has surprised as one of the top performing stocks these last few months.
Coca-Cola — along with its rivals within the food industry— continue to fight higher levels of inflation that’s weighing on its profit margin potential. And as for Coke in particular, 40% of its sales in the U.S. are on-premise and about 30% is overseas, which is not a great place to be during the ongoing Covid pandemic.
Shares of Coke have increased to around 12% in the last three-months. The S&P 500 has gained 9.4% during the same time period.
But Grandet thinks now is the best time to play Coca-Cola’s stock, citing a better management of expenses while under CEO James Quincey, a return to some normalcy in people being allows to go out and its recent purchase of the sports beverage brand BodyArmor.
Adds Grandet, “We think that Coca-Cola is emerging more agile and leaner with a portfolio that’s focused on bigger and more profitable companies that will drive more efficiency. The savings will help aid investments this year back to 2019 levels which should help the company’s top line.”
Author: Steven Sinclaire
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