The Buy And Hold Case For Coca-Cola

The Coca-Cola Co KO introduced a new strategy to better position its business to capitalize on shifting consumer demands, including low-calorie drinks. But some investors still have legitimate concerns with the company as evidenced by declining revenue in the company's third-quarter earnings report.

The Analyst

Wells Fargo's Bonnie Herzog upgraded The Coca-Cola Co's stock from Market Perform/Hold to Outperform with a price target boosted from $45 to $51.

The Thesis

Heading into Thursday's investor day presentation, the Street is likely underestimating several key points which will be presented, Herzog said in a note. Specifically, consensus estimates are calling for a 3.6 percent compounded annual growth (CAGR) on the top-line while the analyst is modeling a 4.8 percent growth. The company is likely to expand its margins at a faster rate than the Street expects over the next three years (740 basis points versus the Street's estimate of 570 basis points). Similarly, over the same time period, the company will grow its earnings per share at a 9.9 percent CAGR while the Street is modeling for a 7.5 percent CAGR rate.

Coca-Cola is also expected to demonstrate in its presentation the potential for accelerating top-line and EPS growth in fiscal 2018 and beyond driven by:

• Improvements in the global system post-re-franchising;
• Improved structural and macro environment;
• Growth opportunities in new beverages and products; and
• Incremental cost savings opportunities beyond its $3.8 billion plan

"Although KO's valuation is somewhat elevated as the market has started to recognize some of its accelerated growth opportunities, we think the market is still underestimating the potential upside and therefore anticipate positive earnings revisions in the near future," the analyst wrote.

Price Action

Shares of Coca-Cola were trading around $46.71 Tuesday morning.

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