Coca-Cola (KO) Selloff Overdone - Stifel

Stifel analyst, Mark Swartzberg, thinks that Wednesdays's underperformance of Coca-Cola (NYSE: KO) (down 4.8%, XLP down 1.1%) reflects skepticism Coke will hit its 4%-5% organic revenue target for 2016 and he reduced his organic revenue estimate to +4.0% from +4.9%. However, he maintained his Buy rating and $54 PT.

However, he also thinks Wednesday’s weakness creates a buying opportunity for the following reasons:

1) North America continues growing and at a faster rate than it did before refranchising began (trend in body of note).

2) Europe is “next up” for accelerated refranchising. Coca-Cola European Partners is on track for creation by the end of 2Q and likely to realize at least $900 mil in revenue synergies, or approximately 7% of 2015 pro forma revenue, over the next three to five years.

3) Africa is also “next up” for accelerated refranchising. We expect Coke to close on the creation of Coca-Cola Beverages Africa by the end of 2Q. In Wednesday's earnings related call, management said the South Africa Competition Commission has recommended that the Competition Tribunal approve the Coca-Cola Beverages Africa merger with certain conditions. The Tribunal is set to meet in May to review the pending transaction.

4) Plans for China refranchising are more ambiguous, though the company continues expecting completion by the end of next year. We believe disappointing region performance creates added incentive to complete refranchising on time.

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 $44.37 yesterday.

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