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Deutsche Bank Downgrades Coca-Cola to ‘Hold’

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Price movement

Coca-Cola Company (KO) has a market cap of $180.2 billion. It fell 0.33% to close at $41.76 per share on December 13, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 2.9%, 2.6%, and 0.36%, respectively, on the same day.

KO is trading 2.0% above its 20-day moving average, 0.99% above its 50-day moving average, and 3.2% below its 200-day moving average.

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Related ETF and peers

The Schwab US Broad Market ETF (SCHB) invests 0.75% of its holdings in Coca-Cola. The YTD price movement of SCHB was 13.5% on December 13.

The market caps of Coca-Cola’s competitors are as follows:

  • PepsiCo (PEP) — $151.9 billion
  • Dr Pepper Snapple Group (DPS) — $16.6 billion

KO’s rating

On December 13, 2016, Deutsche Bank downgraded Coca-Cola’s (KO) rating from “buy” to “hold.” It also decreased the stock’s price target from $48.00 to $44.00 per share.

As reported by TheStreet, Deutsche Bank reflected on Coca-Cola’s performance, stating, “We take a breather, believing CEO James Quincey is the right person for the turnaround job but investor migration out of staples, clear EM and health and wellness related consumption headwinds and likely negative earnings revisions should inhibit near-term outperformance.”

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Coca-Cola’s performance in 3Q16

Coca-Cola (KO) reported 3Q16 net operating revenues of $10.6 billion, a YoY (year-over-year) fall of 7.0% from its net operating revenues of $11.4 billion in 3Q15. The fall was due to the impact of foreign exchange and acquisitions, divestitures, and structural items.

The company’s gross profit margin and operating margin expanded 80 basis points and 60 basis points, respectively. The operating margin includes the impact of foreign exchange and structural changes.

Net income, EPS, and cash

Coca-Cola’s net income and EPS (earnings per share) fell to $1.0 million and $0.24, respectively, in 3Q16, compared to $1.4 million and $0.33 in 3Q15. It reported non-GAAP[1. generally accepted accounting principles] EPS of $0.49 in fiscal 3Q16—a YoY fall of 3.9%.

KO’s total cash, cash equivalents, and short-term investments rose 43.6% YoY, and its inventories fell 3.4% between 4Q15 and 3Q16.

Projections

Coca-Cola (KO) made the following projections for fiscal 2016:

  • organic revenue growth of 3.0%
  • comparable currency-neutral income before taxes to rise 6.0%–8.0%
  • comparable EPS to fall 4.0%–7.0%

Next, we’ll take a look at Avery Dennison (AVY).

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