Susquehanna Upgraded Coca-Cola, Could Be Eyed By Anheuser Busch

• The Coca-Cola Co KO shares have appreciated 2.39 percent over the past year, rising almost to their 52-week high on December 16, 2015, at $43.84.
• In a note out last Friday, Susquehanna’s Pablo Zuanic has upgraded the rating on the company from Negative to Neutral, while raising the price target from $33.00 to $40.00.
• Although there could be M&A upside risk for the company in a few years, Zuanic believes that Coca-Cola’s North American refranchising efforts and global productivity programs would drive margins.

Analyst Pablo Zuanic believes that following the SABMiller deal, Anheuser Busch Inbev SA (ADR) BUD might turn its sights to Coca-Cola, if the former company ever decides to move into the soft drinks category.

Related Link: Earnings Preview: Coke Vs. Pepsi

Zuanic also believes that “a better US pricing environment and refranchising efforts should help NA profitability” for Coca-Cola, and mentioned that “even though we would rather own the targets, further M&A could improve the KO global growth platform.”

Although the stock is currently trading at a 9 percent premium to its F&B peers, Zuanic believes that this is partly due to the “value” of the Coke brand.

According to the Susquehanna report, fundamentals continue to be challenging for the company, with 75 percent of its earnings coming from outside North America, of which 45 percent are from the emerging markets.

In addition, “dietary concerns remain an issue in NA, and we continue to question the company’s ability to build a larger presence outside carbonated soft drinks,” the report said.

Coca-Cola is scheduled to report its 4Q results on February 9. Zuanic expects the company to report its EPS slightly below consensus, driven by FX and lower organic top line trends in the emerging markets.