Analyst Says Coke Ready to Bust Out

Shares of Coca-Cola ( KO) rose Wednesday after the company's investment rating and full-year earnings estimate were upped by Morgan Stanley. The brokerage cited increased strength at the soft-drink maker's bottlers.

Coke shares ended up $2.25, or 5.5% to $43.27.

Morgan bumped up Coca-Cola's rating to overweight from equal-weight with a $52 price target based on three factors. "The health of Coke's major global anchor bottlers has materially improved over the past 2 years through restructuring and more disciplined capital spending." That means future top-line growth and earnings consistency for Coke, the analyst said.

The brokerage also said it believes Coke's sales of non-carbonated and water products, such as its U.S.-based Damone water business, will improve. "The market is not giving Coke the benefit of the doubt on this strategy and we believe it is discounting an unrealistically bearish scenario on non-carb margins over the next 3 to 5 years," Morgan Stanley said.

Additionally, the brokerage said that Coke's markets in Japan and Germany have recently suffered, while its markets in China, India and Russia drove most of the growth. But Morgan Stanley said first quarter results in Germany "represented the worst of the deposit law impact and the company is taking several steps to address the new operating environment." And, Morgan said, in Japan, fears of SARS have impacted consumer confidence.

Morgan Stanley also cited an increase in its comfort level with Coke's newly restructured management team. The broker sees a 27% potential upside to its target and upped its expected 2003 EPS by 4 cents to $1.85 and its 2004 EPS estimate by 6 cents to $2.03. Analyst consensus is $1.83, on average. The company earned $1.66 a share in 2002.

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