Stifel Reiterates Bullish View on Coca-Cola (KO) Following Encouraging Management Meetings

Stifel analyst, Mark Swartzberg, hosted meetings with Coca-Cola's (NYSE: KO) Muhtar Kent, Chairman and CEO, Kathy Waller, CFO, Marcos de Quinto, CMO, and Tim Leveridge, Head of Investor Relations. Key topics were the impact refranchising has had on growth rates and trends in organic revenue growth. No change to Buy rating or $52 PT (based on 23.3x 2018E EPS).

February’s announcement of accelerated refranchising (3% of global volume through company-owned bottlers after 2017, versus 18% currently) followed a period in which Mr. Kent challenged management to accelerate refranchising. (This came up in the context of explaining that James Quincey’s appointment to President & COO in September has allowed/allows Mr. Kent to focus on long-term strategy improvements.)

More than $12 bn of assets are slated for refranchising, and Coke has not announced the form of consideration it will receive for a large portion of these assets. We think announced actions (e.g., equity in Coca-Cola Beverages Africa, equity in Coca-Cola European Partners) and a stated interest in influence with bottlers imply a bias for equity. But Mr. Kent also says “equity is not the only road to Rome”.

In North America each and every refranchised region experienced improved growth subsequent to refranchising.

Mr. Kent believes Coke’s recent upgrade in organic growth (last two quarters +5% to +6%) can be improved further, as indicated by Mr. Quincey at CAGNY, because recent increases in absolute spending levels can be supplemented by better marketing a la Taste the Feeling.

Mr. Kent says CCE’s comparatively weaker organic revenue growth (flattish) than that of CCE AG (Germany) and Coca-Cola Iberian Partners (+2% and +3%, respectively, in 2015), its merger partners, is addressable and likely to yield to best practices at work in CCE AG and CCIP (e.g., emphasis on retailer partnering simultaneous with wholesaler fulfillment). They pressed on whether CCE’s markets (e.g., Great Britain) are less structurally suited to improving trends and come away less concerned about this, believing CCE regions are likely to yield to the practices referenced by Mr. Kent.

For an analyst ratings summary and ratings history on Coca-Cola click here. For more ratings news on Coca-Cola click here.

Shares of Coca-Cola closed at $45.29 yesterday.

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