Investors Growing Impatient With Coca-Cola's Inability To Overcome Macro Challenges

Can The Coca-Cola Co KO survive investor impatience?

“With EPS expected to remain stuck in the $1.90-2.10 range for the eighth consecutive year in 2018, the market's strong reaction to yet another delay in Coca-Cola's earnings recovery signals growing impatience with company's inability to overcome challenging macro environment as well as lack of material positive benefit from the purchase and resale of bottling assets in North America,” BMO Capital’s Amit Sharma said in a note.

The analyst maintained an Outperform rating on the company, while lowering the price target to $45.

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Q4 Results

Coca-Cola reported adjusted EPS for Q4 2016 at $0.37, in line with expectations, driven by better than expected top line growth, especially 6 points of price/mix, largely offset by increased corporate and interest expenses.

The company guided to EPS for 2017 at $1.84-$1.89, partly due to stronger structural headwinds.

Organic revenue growth of 3 percent is expected to lead to currency neutral profit before tax growth of 7-8 percent, offset by unfavorable FX, as well as structural headwinds associated with refranchising.

The tax rate for 2017 is expected at 24 percent, with net share buybacks of $2 billion and capex also of $2 billion.

Coca-Cola also expects structural headwinds to impact its sales and profit before tax in 2018.

Investors Need More

“KO's 2017/18 guidance implies that its transformation into an asset-light, brand-focused, higher-margin company would be largely complete by 2018; however, with nearly eight years of no U.S. dollar-based earnings growth, investors are unlikely to be satisfied with just a different operating model, unless it enables the company to overcome a challenging macro environment, including a stronger U.S. dollar, and leads to substantially stronger earnings growth,” the analyst added.

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Posted In: Analyst ColorLong IdeasPrice TargetAnalyst RatingsTrading IdeasAmit SharmaBMO Capital Markets
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