Coca-Cola ‘s sales could recover much more quickly than expected from depressed pandemic levels, Morgan Stanley said in a bullish update on the stock Friday.
Analyst Dara Mohsenian reiterated an Overweight rating on Coke (ticker: KO) while raising his price target to $64 from $60. He writes that he has “a high degree of conviction that Coke will post an above-average consensus top-line recovery through 2022.”
Coke stock rose 1.4% to $56.39 in recent trading. The shares have gained 2.8% year to date, and are up 14.8% in the past 12 months. The stock got a boost from Coke’s most recent earnings report in April, and Barron’s named it as a favorite stock for 2021.
By Mohsenian’s math, the average analyst estimate expects Coke to only recover about 35% of 2020’s lost sales this year and next, which stands well below the 70% to 80% on average for the company’s consumer products peers.
“This seems way too low, particularly after a well-above-consensus revenue result in the first quarter,” which he thinks was in-line with 2019’s revenue levels on an underlying basis.
But it isn’t just the end of the pandemic that could juice the shares. Mohsenian says investors are underestimating the benefits of Coke’s restructuring efforts, in terms of both costs and superior execution. These changes will boost margins going forward, he writes.
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After all, Coke was already delivering strong organic sales growth before the onset of the pandemic, thanks to product innovation and price increases. The analyst says that trend will pick up once more as the world returns to a more normalized state. He adds that the stock’s valuation has room to expand, as Coke’s multiple still trades below those of its large consumer staple peers.
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