Morgan Stanley Upgrades Coca-Cola (KO) to Overweight; Discount Too Pronounced

(Updated - July 22, 2020 7:13 AM EDT)

(updating comment)

Morgan Stanley analyst Dara Mohsenian upgraded Coca-Cola (NYSE: KO) from Equalweight to Overweight with a price target of $54.00 (from $52.00), saying the underperformance and its outsized valuation discount versus peers has become too pronounced in our minds.

The analyst comments "We are upgrading Coca-Cola from Equal-weight to Overweight, as the stock's recent underperformance and its outsized valuation discount vs. peers has become too pronounced in our minds, despite greater short-term pressure from COVID with half of Coke's sales mix in away-from-home. Previously, we downgraded the stock to Equal-weight early in the COVID situation. We argued at the time that despite our prior positive long-term stance around Coke's outsized revenue growth potential and potential inflecting FCF/EPS growth, the market was materially underestimating COVID-19 risk given Coke’s large eating/dining-out exposure at 40% of sales (50% including gas & convenience), which would lead to material negative consensus EPS revisions. However, we are now upgrading KO to OW as we believe Q2 was the bottom, forward consensus estimates are more reasonable,and relative valuation is now compelling after stock underperformance, with upside optionality from promising early stage COVID vaccines."

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 $47.03 yesterday.

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