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Bear Stearns put aside "profound reservations" and upgraded


(KO) - Get Coca-Cola Company (The) Report

to outperform Friday, saying it expects a weak dollar to lead to upward earnings revisions this year.

The brokerage also predicted an improving picture in key markets such as Germany, Mexico and Brazil, and said Coke shares should benefit from a rotation into consumer names as the situation in the stock market grows increasingly uncertain.

Bear sees Coke earning 74 cents a share in the second quarter and $2.34 a share in 2006, and bases its year-end price target of $48 on a multiple of 19 over its 2007 earnings estimate of $2.53 a share.

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"For Coke,

roughly 75% of operating income derives from outside the U.S., so the exchange rate at which it can convert non-U.S. earnings into dollars matters hugely," Bear wrote. Bear's analysts believe that for every 1% decline in the trade-weighted value of the U.S. dollar, Coke's operating earnings rise by about 1%, all things being equal.

"With the recent dollar rout, the U.S. dollar is 2% weaker this quarter on average versus the second quarter of 2005," Bear wrote. "Consequently, we expect foreign exchange could contribute as much as 2% to 3% to operating income growth at Coke this quarter, giving us confidence in our Street high EPS estimate.

"If current foreign exchange rates are projected forward through the end of 2006 (not unreasonable, given that the


may be nearing the end of its hiking cycle), foreign exchange could contribute as much as 3-4 points of operating income growth at Coke this year," Bear said. "We do not think the Street has this baked into its numbers for Coke, and we are hewing to our FY06 estimate of $2.34, again, the highest on the Street."

Shares of Coke closed at $43.39 Thursday, up about 8% on the year. In premarket trading Friday, the stock rose 46 cents, or 1.1%, to $43.85.