Barclays' Favorite In Big Beverage Group May Surprise You

Coca-Cola European Partners: Top-Line Growth to Come

Analyst Lauren Lieberman believes the merger would give Coca-Cola European Partners new tools to drive positive operating leverage. While noting that historically, the legacy Coca-Cola Enterprises was successful at this even as the top-line deteriorated, the analyst noted that the new Coca-Cola European Partners has the tools that would allow top-line growth to play a role in value creation.

Barclays feels the company is now better positioned to cope challenges such as slow GDP growth, low inflation, category headwinds and a challenging retail landscape due to its greater alignment with its brand owner Coca-Cola.

Dr. Pepper Snapple: Top-Line Improves, Though Strategy Isn't Risk Free

On Dr. Pepper Snapple, Barclays noted that top-line outlook has improved, although strategy isn't risk-free. The firm is of the view that effective management of the core has allowed the company to meet its modest algorithm, and allied brand growth has led to an inflection in revenue expectations.

Barclays opines that the company's Bai is now fully exposed to rapid growth followed by a sharp deceleration and the allied brand revenue stream is less certain due to third-party ownership. However, Barclays feels the company's Rapid Continuous Improvement philosophy is an unique and optimistic approach to the future.

Pepsi: Delivering Change In Financially Responsible Way

Barclays believes Pepsi's core competency is delivering change in a financially responsible way. The unique marriage of longstanding tradition of change with a returns-focused mindset, according to the firm, has helped the company to be one of the most consistent performers in staples.

Internationally, the firm noted Pepsi is taking a targeted approach on beverages and investing in creating a globally dominant salty snack franchise. Ultimately, this strategy can support a high-return international snacking business, the firm noted.

Coca-Cola: Strategic Change To Begin To Pay off Over Next 1–2 Years

Barclays believes Coca-Cola is doing more to drive industry change than for what it gets credit. The firm disagreed with the common view that the company is too far behind and too ingrained in its old ways to adapt and stated that the company is enacting major strategic change that will begin to pay off over the next one to two years.

However, the firm feels near-term headwinds would continue to cloud the immediate outlook. Although the firm expects improving fundamental trends, it is of the view that shares would be rangebound in the near term.

Barclays expects the company to get some support from the emerging markets, which it expects to see a bottom through the first half of first half of 2017. The firm also expects increasing forex pressure and the phasing of refranchising will hold back reported earnings.

Ratings/Price Targets

• Coca-Cola European Partners: Overweight/$36 price target.
• The Coca-Cola Co: Equal Weight.
• Dr Pepper Snapple Group: Equal Weight/$87 price target.
• PepsiCo: Equal Weight/$102 price target.