Deutsche Makes A Resolution To Hold Coca-Cola, Procter & Gamble In The New Year

Deutsche Bank’s Bill Schmitz believes, despite recent underperformance, group valuation suggests the beverage segment is nearing fair intrinsic value.

Approaching Fair Value

The analyst expects rate hikes in 2017, a strong dollar and an improving U.S. macro environment, all of which are likely to drive negative staples funds flows.

Schmitz upgraded the rating on The Coca-Cola Co KO and Procter & Gamble Co PG from Hold to Buy, while lowering the price target for the former company from $48 to $44 and for the latter from $95 to $90.

The analyst believes Coca-Cola CEO James Quincey is the right person to bring about a turnaround, although “investor migration out of staples, clear EM and health and wellness related consumption headwinds and likely negative earnings revisions should inhibit near-term outperformance.”

Outlook

Schmitz also expressed comfort with the medium- to long-term opportunity for Procter & Gamble, although near-term catalysts are likely to be absent for the next few quarters.

Despite the broad pressure of the beverage segment, the analyst believes the evolving macro factors, which are crucial for earnings momentum, would drive share price performance.

“With the strong dollar, f/x should again clip expected outsized earnings growth at the multinationals which should help the more commodity exposed, domestic names unless we are entering an anomalous period of a strong dollar and rising commodities,” the analyst went on to say.

The EPS estimate for 2017 for Coca-Cola has been lowered from $1.95 to $1.90, while the EPS estimate for Procter & Gamble is in line with the consensus at $3.87.

At Last Check

• Coca-Cola shares were down 0.36 percent at $41.75.
• Shares of Procter & Gamble were down 0.08 percent at $85.06.