Credit Suisse was forced to cut its target on Coca-Cola (KO) because the stock continues to sputter, even after posting better than expected earnings yesterday. (What happened to courage of convictions?)
Credit Suisse’s view is that KO should trade at a 20-25% premium to the market, so while they cut their target, the bank has not lost faith in the global drink giant:
Will decelerating volumes = Eroding fundamentals? No. A market that seemed to be expecting 3%-4% global volume growth rates for KO was not happy with 3%. This is the third consecutive quarterly earnings beat, with positive EPS revisions, where the stock trades down….
Going forward, the fear is that as bottlers take pricing to offset commodity costs that volumes and revenues will continue to decelerate for Coke. This concern fails to capture two long-term realities. First, as bottlers take rate increases, Coke too will reflect that rate in its revenue per case.…
Second, CCE [bottler Coca-Cola Enterprises] hangs on in a parallel universe of dysfunction that is all its own and in sharp contrast to the standard of many international bottlers that are enjoying improved long-term clarity of roles and economics, better non-carb models and are thus investing for the long-term with less regard for this macro environment than conventional thinking suggest. Call it the Muhtar effect. This quarter marked the highest share of volume and share of revenues that Coke had seen in many years across each of its operating groups.
Credit Suisse reiterates OUTPERFORM on Coca-Cola (KO), target cut from $68 to $60.