The Coca-Cola Company (NYSE: KO) has tested its investors’ patience in the past several quarters as it undergoes a major transition to its business model. KO stock has lagged the market and declined more than 9 percent in the past six months, but analysts say Coca-Cola may look like a completely different investment by 2019.
Barclays analyst Lauren Lieberman says Coca-Cola’s new product offerings and its shift to an asset-light business model are paving the way for a new era of revenue growth. In recent quarters, heavy investments in bottler refranchising have resulted in steep declines in revenue. To make matters worse, the North American beverage environment has been difficult. In the first quarter, Coca-Cola reported a 16 percent year-over-year decline in revenue.
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In order to adapt to the more difficult environment, Lieberman says Coca-Cola has focused on diversifying its business, updating its operating model with more of an emphasis on local offerings and revamping its supply chain in conjunction with its bottlers.
“KO is executing a thoughtful business transformation that’s among the most comprehensive we’ve seen,” she says.
As a result of the restructuring efforts, Lieberman says investors may not be recognizing the favorable positioning Coca-Cola has relative to its peers in coming years. Barclays estimates Coca-Cola should be able to grow its organic sales by 5 percent in 2019 and 2020 and grow its profits by close to 8 percent in that time.
“Should KO deliver the results that we are expecting, we think it deserves a greater valuation premium versus the last decade and recent past, particularly as the rest of the group is under pressure,” Lieberman says.
Lieberman isn’t the only analyst who sees major upside for KO stock. CFRA analyst Joseph Agnese says the global bottler refranchising will drastically improve margins starting in 2019.
“We expect these moves to improve operating margins in the longer term as the bottling business has significantly lower operating margins than the concentrate business,” Agnese says.
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Agnese also says Coca-Cola has a relatively large footprint in attractive high-growth international markets such as India and China, which could help Coca-Cola maintain its longer-term growth trajectory.
Barclays has an “overweight” rating and $48 price target for Coca-Cola. CFRA has a “strong buy” rating and $51 target for KO stock.
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The Coca-Cola Company (KO) Stock Will Make a Comeback in 2019 originally appeared on usnews.com
