Barclays Finds Coca-Cola's Stock Refreshing As Consumer Staples Industry Suffers

Amid upheaval in the consumer staples industry, The Coca-Cola Co KO is expected to emerge a leader.

The Rating

Barclays analyst Lauren Lieberman upgraded the stock to Overweight and increased her price target from $45 to $48.

The Thesis

Barclays attributes the company’s year-to-date outperformance of the Consumer Staples Select Sect. SPDR (ETF) XLP more to insulation from sector-wide issues than to broad conviction in the firm’s potential.

As such, Coca-Cola is expected see improved valuation as it evolves through a stable diversification plan, more local-focused operating model and supply chain capabilities better aligned with its bottlers.

“KO is executing a thoughtful business transformation that’s among the most comprehensive we’ve seen EL also comes to mind),” Lieberman wrote in a Thursday note.

The process is expected to drive sustainable, improved growth — 5 percent in organic sales and 6 to 8 percent in profits through 2020, by Barclays forecasts — which could result in a higher valuation premium beyond 25 percent.

“Our model allows cash to build on the balance sheet, though we expect a more asset light and cash flow generative KO to have greater flexibility over time,” Lieberman wrote.