Coca-Cola Alert: Stifel Upgrades To Buy, Sees 30% Upside

• The Coca-Cola Co KO shares have appreciated almost 3 percent over the past six months to reach a high of $43.84 on December 16.
• Stifel's Mark D. Swartzberg has upgraded the rating on the company from Hold to Buy, with a price target of $54.
• Swartzberg believes that there could be 30 percent upside to the stock valuation.

Analyst Mark Swartzberg mentioned that Coca Cola's organic growth was picking up and that the improved growth was expected to be sustained “even in the absence of an improved macro environment.”

Swartzberg also believes that management has in recent times taken action to enhance the resolve and ability to drive improved performance.

Improving Performance

According to the Stifel report, “Improving performance is partly due to reinvestment of a portion of productivity savings announced in October 2014.”

Stifel's benchmarking indicates that the company has been able to achieve additional cost savings of $4.3 billion, with as much as $6.1 billion in cost savings being “unlockable.” This would equate to annual EPS of $0.78-$1.11.

“Aided or not by a more demanding board, management is likely to drop more of a given unlock to the bottom line, in our opinion, because spending has been upped and trends are on a better trajectory,” the report added.

However, Swartzberg pointed out that this improved performance could be significantly impacted by the company’s decision regarding bottling assets in Africa.

Estimates Revised

The revenue and EBITDA estimates for 4Q15 have been raised, while the EPS estimate has been slightly lowered. On the other hand, the revenue, EBITDA and EPS estimates for 2016 have been lowered. For 2017, the revenue estimate had been lowered, while the EBITDA and EPS estimates have been marginally raised.

Diageo Downgraded

Swartzberg has, however, downgraded the rating on Diageo plc (ADR) DEO from Buy to Hold, saying that the stock already reflects expectations of “improving internal growth” and that meaningful upside versus peers or company-specific expectations were unlikely.