Coke gets a much greater portion of its business from away-from-home consumption than PepsiCo.
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Coke is falling almost 3% on Wednesday, following the stock’s third downgrade in as many days, as analysts grapple with the beverage giant’s future amid the uncertain timing of a post-pandemic reopening.
Deutsche Bank analyst Steve Powers cut his rating on Coca-Cola stock (ticker: KO) to Hold from Buy, and lowered his price target to $55 from $57.
He writes that Coke “continues to represent a compelling recovery narrative” heading into 2021, especially given the weakening U.S. dollar. Yet he notes that “the pacing of broader recovery (and secondarily, Coke’s execution) has always carried some uncertainty.”
Coke gets a much greater portion of its business from away-from-home consumption, at places ranging from restaurants to movie theaters, than does rival PepsiCo (PEP), which makes the timing of a reopening all the more salient for the stock. This risk—and people’s ongoing hesitancy to resume their old ways even as vaccination becomes more widespread—also been cited in other recent downgrades of the stock.
Yet that’s not the only problem Powers sees. He also notes that a November Tax Court judgment found that Coke owns some $3.3 billion in taxes to the Internal Revenue Service, dating to issues with payments from 2007 to 2009. He calls it a “material added setback,” and while the ruling is likely to be appealed and potentially ultimately settled for a lower price, he continues “to foresee lingering, if not rising downside risks associated with the judgment.”
Coke is down 2.8%, at $50.73, in recent trading. The S&P 500 is up 1%.
Both Guggenheim and RBC Capital Markets had already downgraded Coke on Monday and Tuesday of this week. The firms saw ongoing headwinds stemming from the pandemic, which may weigh on Coke’s business longer than bulls expect. The latter also concurrently cut its Pepsi, which also received another downgrade today.
Barron’s has been more upbeat about Coke, noting the safety of its dividend, currency tailwinds, and the benefits it will see when things return to normal.
Write to Teresa Rivas at [email protected]
