The Consumer Stock Most Likely to Outperform in 2011 Is...

(Consumer staple stocks poll results updated with synopsis of Morgan Stanley initiation coverage of Coca-Cola Company stock.)

Coca-Cola Company (KO)

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NEW YORK ( TheStreet) -- The Coca-Cola Company ( KO) will be the consumer staples outperformer of 2011, according to a vote by users of TheStreet.

The other contenders on the survey on 6 consumer staples with upside in 2011 were Altria ( MO), Corn Products International ( CPO) and General Mills ( GIS), which took 32.5%, 10.2% and 9.3% of the votes respectively; as well as Tyson Foods ( TSN) and Church & Dwight ( CHD), which received 8.5% and 4.9% of the votes, respectively.

One of the main reasons investors are so confident about Coca-Cola's ability to prevent rivals from taking away its market share and driving away its profits is the company's powerful distribution network around the world. Even so, the beverage giant hasn't gotten complacent. To ensure its footprint in key developing markets abroad, Coca-Cola wants to invest $20 billion in Africa, Russia, Mexico and China by 2020.

"We think these investments will build out the firm's manufacturing and distribution footprint to such an extent that it would be too costly for a new entrant to replicate," Morningstar analyst Philip Gorham says in a report.

Gorham says Coca-Cola is poised to be in a very good place to benefit abundantly from the rising disposable incomes of consumers in the developing markets.

Standard & Poor's analyst Esther Kwon estimates that Coca-Cola will generate more than 20% of its revenue from developing countries in 2011.

Although investors have focused much of their attention on Coca-Cola Company's recent purchase of bottler Coca-Cola Enterprises ( CCE) North American operations for $3.4 billion this year, Kwon continues to factor in the company's huge international footprint. With a presence in more than 200 countries and licensing and marketing rights for more than 500 different brands, developing countries are a huge revenue driver for the company.

"We like the ample free cash flow of Coca-Cola," Kwon said

As Coca-Cola continues to enjoy what Gorham says is a "wide economic moat," or hard-to-break leading market position, the company faces challenges such as the declining popularity of sodas and increasing demand for less-sugary drinks in North America, and the costliness of trying to cater to these changing needs. Gorham says broadening its portfolio to include non-soda beverages has been hard on Coca-Cola's bottlers because it's more costly for them to produce smaller scale goods.

Gorham said Coca-Cola's decision to follow rival PepsiCo ( PEP), who had just bought its bottlers, by buying the North American operations of bottler Coca-Cola Enterprises was intended to allow it to more easily respond to these changing needs with less hassle.

Morgan Stanley recently initiated coverage of Coca-Cola with an equal-weight rating. While Morgan Stanley analysts note the fundamental strength and strong long-term growth potential Coca-Cola presents vs. consumer staple peers, they also note that the stock price already largely reflects robust outlook for the company.

Shares of Coca-Cola has risen about 31% since Jul. 1, outperforming Pepsi ( PEP) and the S&P 500.

Morgan Stanley predicts that Coca-Cola will have organic sales growth of 5.2% over the next five years, above the average 4.3% growth expected for its large-cap competitors; however, Coke's growth may be slightly offset by the slower-growth carbonated soft drink category, according to the Morgan Stanley analysts. Their analysis of consumption and disposable income trends in countries where Coke and its peers are present suggests that Coke has more emerging market expansion potential than its consumer staple peers.

Still, "we are less enthused than the consensus by the prospects of a more expansive share repurchase program, which is widely anticipated," the analysts wrote in an equity research report. Their analysis suggests that even if Coke used 75% of cash to repurchase 7% of shares, it would only drive 2% earnings per share accretion, given the stock's premium valuation and repatriation taxes.

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-- Written by Andrea Tse in New York.

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