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Coca-Cola Turnaround Almost Here, UBS Says

It raises the stock to buy and sets a $53 price target.
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A marketing blitz and improved execution should spark a turnaround at


(KO) - Get Coca-Cola Company Report

and fatten the share valuation, UBS said in upgrading the stock to buy from neutral Friday.

"We believe investors are under-appreciating the impact of Coca-Cola's implementation of $400 million worth of incremental marketing/innovation, which is almost entirely back-half loaded (even though it has shown up in first-half on generally accepted accounting principles financials)," the brokerage wrote.

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UBS, which has had an investment banking relationship with Coke, raised its price target to $53, or 22 times its 2006 earnings estimate of $2.41 a share. The old estimate was $46.

In early trading, the stock was up $1.02, or 2.3%, to $44.55.

UBS expects Coke's earnings multiple will expand from its current 19 as its turnaround takes hold, similar to a phenomenon that occurred 10 years ago.

"We draw a compelling analogy between the Coca-Cola of 1994 and the Coca-Cola of today and see several clear similarities, including a focus on innovation and marketing, led by discounting in supermarkets," the brokerage wrote. "Twelve months following the 1994 valuation trough, Coca-Cola shares increased 60% while P/E multiples expanded 6 points (19x to 25x) on strong top-line growth."

UBS said a financially stronger bottling network is freeing up capital that Coke can spend on brand marketing. It predicted that Coke will benefit from improving economies in Mexico and Britain and better weather throughout Europe.