After Coca-Cola Is Oversold in Market Mayhem, Analysts Start Showing More Respect

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Coca-Cola Co. (NYSE: KO) had been considered down and out and dead money for so long that no one seemed to ever want to give its shares much recognition. It is far from a major growth stock in most investors’ minds, but its defensive stock characteristics, roughly 3.5% dividend yield and $190 billion market cap make it a core holding for many blue chip investors.

What was interesting about the last big stock market sell-off from the end of January through the first full week of February is that Coca-Cola shares went from looking like a breakout stock chart to being grossly oversold. Its shares have only partly recovered the losses, and they remain close to 10% under the 52-week and multiyear high.

After Coca-Cola’s recent positive earnings report, it looks like the stock is finally starting to command more respect from Wall Street analysts. And Warren Buffett also has maintained his strong stake in Coca-Cola after all these years. Coca-Cola was a disappointment in performance in the sell-off after considering it was named among 15 defensive stocks that should survive just fine over time.

24/7 Wall St. has tracked numerous analyst calls since its earnings report. Most of the calls have been accompanied by price target hikes, even if many of the calls are still Neutral or Hold in their ratings bias.

Credit Suisse is among the more bullish firms. When it reiterated its Outperform rating it raised its target price to $53 from $51 as well. After showing that organic sales increased 6% in the quarter and rose by 3% for the year, the firm liked management’s guidance for 4% organic growth in 2018. Credit Suisse even raised its so-called Blue Sky scenario target to $59 from $56, if things go even better than expected. Its report said:

We remain positive on Coca-Cola shares because we think the company is just starting to embark on a multi-year “journey” of sales growth acceleration within its longer-term 4% to 6% guidance algorithm. CEO James Quincey is taking an aggressive approach to building a “total beverage company” and growth is clearly his top priority as evidenced by his opening remarks on the conference call, saying “we need to be growing revenue and earnings per share at a faster rate”, despite the business already outgrowing its primary competitor and the rest of consumer staples.

Deutsche Bank has a Buy rating with a $52 price target, and the firm talked up the positives around 2018 cash flow guidance being at least $8.5 billion. The firm also talked up the company’s plans to shed about $7 billion in debt and expectations for another $1 billion in share buybacks.

Merrill Lynch reiterated its Buy rating and $52 price target. Its view is that the beverage giant is making progress on developing new earnings levers to relieve volume growth pressures. It further believes that Coca-Cola ultimately will be better able to adapt to volatility in the marketplace, and it sees Coca-Cola having more control over the ability to achieve its sales and earnings goals.

CFRA (S&P) raised its rating on Coca-Cola to Strong Buy from Buy and raised its target price to $51 from $49. The firm set 2019 earnings estimate at $2.20 per share, and it talked up Coca-Cola’s margin expansion from productivity improvements coming at the same time as higher input and freight costs.

On Tuesday, Bernstein reiterated its Outperform rating and raised its price target to $52 from $51.

Barclays maintained its Equal Weight rating and $46 price target. That being said, the firm talked up Coca-Cola’s quarter as solid and with guidance that is achievable, noting better revenue growth initiatives with better price/mix and diversification. Its caution remains in replacing the visibility of its margins being more complicated. Three other similar calls were seen as follows:

  • JPMorgan has maintained only a Neutral rating but its target was raised to $49 from $48.
  • Susquehanna also has a Neutral rating but raised its target price to $46 from $45.
  • Morgan Stanley has an Equal Weight rating, but the firm raised its target price from $48 to $49.

A firm named Independent Research raised its Coca-Cola rating to Hold from Sell and raised its target price to $48 from $36.

24/7 Wall St. tries to offer both sides of analyst calls for balance, and we have seen one price target cut. Jefferies lowered its price target marginally to $49 from $50.

Its consensus analyst price target has slowly crept higher in 2018. At $50.05 on last look, that consensus analyst price target was $48.75 in mid-December, and it was under $46 last summer.

Some value-conscious investors may point out that Coca-Cola is valued highly at 21 times expected 2018 earnings per share. That being said, defensive stocks with solid earnings power and high dividend yields still often have a market-premium when it comes to how much investors are willing to pay (or will have to pay) up to own the shares.

Coca-Cola’s shares were down 1.3% at $44.40 on Tuesday, but the 52-week trading range of $41.20 to $48.62 and the recent low under $43 might indicate to at least some investors that this stock was simply sold off too much.