JPMorgan Upgrades Coca-Cola, Says Tax Dispute Ruling Could Be Next Catalyst

Coca-Cola Co KO shares gained 2.2% during a weak market session on Monday after the company landed a major Wall Street upgrade.

The Analyst: JPMorgan analyst Andrea Teixeira upgraded Coca-Cola from Neutral to Overweight and raised her price target from $59 to $63.

Related Link: Is Coca-Cola's Stock Overvalued Or Undervalued?

The Thesis: In the upgrade note, Teixeira said Coca-Cola’s sales are accelerating, it has low price elasticity and the stock trades at an attractive valuation.

She is predicting Coca-Cola’s recent top-line growth momentum will carry over into 2022 as the world continues to recover from the COVID-19 pandemic. Teixeira said Coca-Cola’s strong brand value and asset-light business model have also helped the company navigate a difficult environment of cost pressures.

Coca-Cola is currently fighting the IRS in court in a tax dispute, but Teixeira said the company’s dividend and debt rating is likely safe even in a worst-case court ruling. But, if the court finds Coca-Cola must pay a 3.5% higher marginal income tax moving forward, Teixeira estimates the company’s 2023 EPS would take roughly a $2.55 hit and JPMorgan’s price target would drop to $60.

“As such, we see limited downside potential for KO shares at these levels, even if the litigation goes against KO, and we think a resolution either positive or negative would remove this overhang,” Teixeira said.

After recently meeting with Coca-Cola management, Teixeira said she is increasingly confident the company will hit the top end of its 4% to 6% organic sales growth guidance range for 2022.

Benzinga’s Take: Coca-Cola may not be the most exciting stock on Wall Street, but it is one of the most reliable blue-chip investments in the market and it pays a nice 2.9% dividend.

There’s a good reason why Coca-Cola has been one of Warren Buffett’s largest investments for decades.

Photo by Laura Chouette on Unsplash