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Coca Cola Stock: Bull Case vs. Bear Case

Are you a bull or bear on Coca Cola Company stock? Read on for analysts' bull and bear views on the stock.
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(Coke story updated with Moody's latest report on Coca Cola and its global beverage industry outlook.)



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Bull Case Presented by Morningstar's Philip Gorham:


Coca Cola's

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distribution network extends to more than 200 countries worldwide, an infrastructure that would be extremely difficult and costly for new entrants to replicate."

Bear Case Presented by Morningstar's Philip Gorham

"Coca Cola's revenues are relatively undiversified in comparison with those of rival


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, whose snacks business has proven to be quite resilient during economic downturns."

J.P. Morgan Stock Rating:

Overweight, with a $66 price target. "Coca Cola has been the worst performing name in our U.S. beverage universe, and the stock is no longer priced for near perfection, as it was in January. The stock has underperformed the group by 13% year-to-date and PepsiCo by 10% year to date. As the

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Coca-Cola Enterprises


deal closes and developed markets improve, we would expect valuation to normalize."

In February, Coca-Cola Enterprises and Coca Cola entered a deal where Coca Cola would acquire Coca-Cola Enterprises' North American business in a substantially cashless transaction and the former would acquire the latter's bottling operations in Norway and Sweden for $822 million.

J.P. Morgan told clients in an investor note that Coca Cola had lost its premium to its peer group this year due to its surprise announcement to purchase Coca-Cola Enterprises, challenges in developed markets and increased risk from foreign exchange.

J.P. Morgan said volume comps in most developed markets should get easier in the back half of the year. This should help ease some of the pressure Coca Cola saw on its organic revenue growth in the first half of the fiscal year where there was a noticeable divergence in volume growth between emerging and developed countries.

Bull Case Presented by Morningstar's Philip Gorham:

"Interbrand has named Coca Cola the most valuable brand in the world for several consecutive years, citing the firm's effective marketing and ability to adapt its product portfolio to shifting consumer tastes."

Bear Case Presented by Morningstar's Philip Gorham:

"With a footprint that already spans the globe, there may be little remaining opportunity for Coca Cola to expand geographically."

UBS's Stock Rating:

Buy, with a $62 price target. "Coca Cola continues to demonstrate solid volume growth in most markets, along with solid P&L (profit and loss) flexibility. Other positives going forward include multi-billion dollar share repurchase plan (to be implemented between the Coca-Cola Enterprises deal closure and year-end), productivity savings, strong emerging markets and solid pricing."

Bull Case Presented by Morningstar's Philip Gorham:

"Albeit late to the game, Coca Cola has recently extended its product portfolio into growing noncarbonated beverage categories in response to changing consumer preferences."

Bear Case Presented by Morningstar's Philip Gorham:

"Despite the popularity of its flagship brand, cola consumption is declining at a faster rate in the U.S. than the broader carbonated soft drinks market."

Deutsche Bank's Stock Rating:

Buy, with a $62 price target. The analysts expect Coca Cola shares to trade up as earnings outperform and the Coca Cola Enterprises deal closes.

The analysts noted that the company's ongoing strength in growth markets "creates a healthy volume picture."

Deutsche Bank said "key downside risks are appreciation of U.S. dollar relative to major trading currencies, volume deterioration in key markets, pricing erosion, volatility of input costs, lower equity income, quality of execution by Coca Cola bottlers and M&A (mergers and acquisition activity)."

Bull Case Presented by Morningstar's Philip Gorham:

"Coca Cola's acquisition of its bottling and distribution activities in North America should give it a closer relationship with retailers and prevent PepsiCo from gaining a competitive advantage in a fiercely contested market."

Bear Case Presented by Morningstar's Philip Gorham:

"Soft drink bottling and distribution are capital-intensive and low-margin activities, so Coca Cola's profitability is likely to be hurt on a reported basis by its acquisition of CCE's North American operations."

Stifel Nicolaus's Stock Rating:

Buy, with a $59 price target. "We continue to expect increasing relative performance of Coca Cola versus PepsiCo and staples stocks generally given valuation, Coca Cola's continued growth and the likelihood that ... 'negative' buying

of Coca-Cola Enterprises North America becomes a positive as Coca Cola delivers on the expected benefits of the transaction."

Bull Case Presented by Morningstar's Philip Gorham:

"The company's products represent around 3% of the estimated 50 billion beverages that are served every day around the world, creating global familiarity with its brands."

Moody's Global Beverage Industry Outlook:

Moody's said it has a stable outlook for the global beverage industry, reflecting its resilient performance and the company's continued focus on reducing costs and capital investment amid a difficult consumer environment.*

Still, although there are signs that consumer spending trends have started to improve or stabilize, Moody's said it doesn't plan on changing its industry sector outlook to positive in the near term.

Moody's said regional differences remain for global beverage industry volumes -- volume decline continues in most mature, developed markets such as the U.S. and Western Europe, while Asia and Latin America show more resilience, supporting top-line growth for companies exposed to those regions. Meanwhile, Eastern European countries have experienced slower-than-expected economic growth, projected to only gradually recover in the second half of the year. Moody's said it believes business conditions in Japan have stabilized, but domestic growth opportunities remain limited.

Moody's Credit Opinion:

Moody's has a stable outlook for Coca Cola. Moody's said its ratings for Coca Cola were driven in part by the "the world's largest" soft drink producer's estimated 50% market share in global carbonated soft drinks. Moody's also noted Coca Cola's diverse portfolio of strong brands that rank number one or two in their categories within each market; "unrivaled" global distribution, brand diversity and the ability to adapt to a changing environment as demonstrated by its past acquisitions; product innovation and willingness to transform the system to address changes in the market.

Moody's said that Coca Cola has been disciplined about maintaining "solid liquidity and conservative shareholder return policies." It said the company and its bottlers are well-positioned to benefit from the economic recovery.

-- Written by Andrea Tse in New York.

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