Should You Buy Coca-Cola and PepsiCo amid Market Crisis?

Coca-Cola (NYSE:KO), PepsiCo (NASDAQ:PEP), and other consumer staples stocks are getting analysts’ attention amid the stock market turmoil.

Sirisha Bhogaraju - Author

Mar. 24 2020, Published 12:37 p.m. ET

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Coca-Cola (NYSE:KO), PepsiCo (NASDAQ:PEP), and other consumer staples stocks are getting analysts’ attention amid the stock market turmoil. Today, HSBC raised its rating for Coca-Cola stock to “buy” from “hold.” However, the firm lowered its target price for Coca-Cola stock to $45 from $61.

On March 23, JPMorgan Chase upgraded Coca-Cola stock to “overweight” from “neutral.” According to The Fly, JPMorgan Chase expects Coca-Cola’s sales in 2020 to be hit by the negative impact of coronavirus due to out-of-home consumption, currency headwinds, and lower volumes. However, JPMorgan Chase is optimistic that the company’s sales will rebound in 2021 with organic growth of 7.2%. JPMorgan Chase thinks that the recent sell-off in Coca-Cola stock is an opportunity for investors to buy the stock for the long term.

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Coca-Cola’s stock movement

On March 20, Coca-Cola disclosed that it wouldn’t be able to meet its previously issued guidance for 2020 due to the impact of coronavirus. Travel restrictions, a cancelation of major entertainment and sporting events, work-from-home policies, and lockdowns amid the coronavirus pandemic will likely impact Coca-Cola’s sales.

Earlier, the company predicted 5% organic revenue growth and about a 7% rise in its adjusted EPS in 2020. Coca-Cola’s revenue grew 8.6% to $37.3 billion in 2019. The organic revenue growth was 6%. Coca-Cola is improving its performance through continued innovation of healthier beverages. Some of the company’s innovations include Coca-Cola Plus Coffee, Innocent Plus, and Coca-Cola Zero Sugar. The company is also strengthening its growth through strategic acquisitions, including Costa Coffee and Fairlife.

So far, Coca-Cola stock has declined by 32.1% in 2020. Rival PepsiCo has fallen 23% as of Monday. The widespread coronavirus outbreak has impacted economies across the globe. The S&P 500 and the Dow Jones have declined 30.7% and 34.9%, respectively.  

JPMorgan Chase upgraded its rating for Coca-Cola stock but lowered its target price to $44 from $60 based on the current stock market crisis. Coca-Cola’s strong balance sheet and its dividends are other strengths that JPMorgan Chase cited for its “overweight” rating.

Coca-Cola and PepsiCo are dividend aristocrats, which implies that they have increased their dividend for at least 25 consecutive years. In February, Coca-Cola announced a 2.5% rise in its annual dividend to $1.64. This year would mark the 58th consecutive year that the company raised its dividend.

Analysts see an upside of 53% as of Monday in Coca-Cola stock over the next 12 months with an average target price of $57.34.

Is there an upside in PepsiCo stock?

On Monday, Morgan Stanley upgraded PepsiCo stock to “overweight” from “equal weight.” Morgan Stanley also raised Colgate Palmolive’s rating to “overweight” from “equal weight.” The firm thinks that these stocks are oversold despite strong earnings visibility. Morgan Stanley is also bullish about Mondelez and Procter & Gamble. Staples, like Clorox and Procter & Gamble, have seen a huge demand for essentials amid the coronavirus pandemic.

Notably, Morgan Stanley upgraded PepsiCo due to the defensive nature of its business, strong dividend yield, and low balance sheet risk. This year, PepsiCo announced a 3% rise in its dividend to $3.82. The company has increased its dividend for the 48th straight year. As of Monday, Coca-Cola stock had an average dividend yield of 4.4% compared to PepsiCo’s 3.6%.

In 2019, PepsiCo’s revenue rose 3.9% to $67.2 billion and its organic revenue growth was 4.5%. However, PepsiCo’s adjusted EPS fell by 2.3% to $5.53. The company’s guidance issued in February indicates an organic revenue growth estimate of 4%. Meanwhile, the guidance indicates EPS growth of 6% in 2020.

PepsiCo, like Coca-Cola, is strengthening its portfolio in growth categories beyond conventional soda drinks. Recently, the company announced an agreement to acquire Rockstar Energy for $3.85 billion. PepsiCo’s Rockstar Energy acquisition will help it expand in the high margin energy drinks space.

Analysts have an average 12-month target price of $142.41 for PepsiCo stock, which implies an upside potential of 35%. Overall, major staples stocks look attractive in the current scenario based on their dividend yields, defensive product portfolios, and strong dividend yields.


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