TD Cowen raises Coca-Cola rating, citing "overreaction" to recent share price dip

Investing.com - A pullback in Coca-Cola's (NYSE:KO ) stock price is an "overreaction" among investors to volume concerns and worries over the impact of the upcoming Trump administration's trade policies, according to analysts at TD Cowen.

The beverage giant's chief executive James Quincey warned in October that it is seeing a drop in volumes in China and the Middle East. China, in particular, has been hit by a sluggish post-pandemic recovery that has weighed on consumer spending habits, while ongoing conflicts in the Middle East have slowed down the flow of supplies to the region.

The comments sparked some worry among investors, with shares in Coca-Cola slipping at the time. The stock has since fallen by roughly 9%.

However, Coca-Cola has also said it is still pushing to reach the higher end of its organic sales forecast for 2024, thanks largely to sturdy demand in the US despite a jump in prices for its sodas and juices. Annual organic sales are now seen rising by around 10%, up from a prior guidance for an increase of between 9% to 10%.

Meanwhile, average selling prices expanded by 10% in the third quarter, although unit case volumes dipped by 1%.

In a note to clients raising their rating of Coca-Cola's stock to "buy" from "hold" and reiterating a price target of $75, the TD Cowen analysts led by Robert Moskow argued that Coca-Cola "continues to execute at the top of its game" through successful refranchising actions in Vietnam, the Philippines and India. In the US, which accounts for about 37% of Coca-Cola's total sales, its execution has also been "outstanding", they said.

The analysts said the company's volume issues are subsequently "transitory." Meanwhile, separate worries around the potential impact of the incoming Trump administration's sweeping import tariff plans on foreign exchange rates and its operations in emerging markets are "nebulous," due in part to strength in Coca-Cola's Mexico unit. Some of its consumer goods rivals had pointed to possible economic pressures in the country because of Trump's trade stance.

As a result, the recent fall in Coca-Cola's share price has been an "overreaction," they said.

"This creates an attractive buying opportunity in a stock with plenty of room to capitalize on per capita beverage consumption growth in international markets over the long-term," the analysts said.

Source: Investing.com