Molson Coors Downgraded By Goldman Sachs On Weak Volume; Coca-Cola European Partners Upgraded On Growth Opportunity

In conjunction with a beverage industry update, Goldman Sachs recommended another pair trade in the space this week in addition to its downgrade of PepsiCo, Inc. PEP and simultaneous upgrade of The Coca-Cola Co KO.

The Analyst

Judy Hong upgraded shares of Coca-Cola European Partners PLC CCE from Neutral to Buy and reduced the price target from $50 to $48.

The analyst downgraded shares of Molson Coors Brewing Co Class B TAP from Buy to Neutral and lowered the price target from $104 to $83.

Coca-Cola European Partners: Healthy Top And Bottom Line

With a U.K. soda tax having taken effect this month, investors have a compelling opportunity to benefit from Coca-Cola European Partners' re-emerging capital allocation potential, Hong said in a note.

Goldman Sachs forecast all-in sales growth excluding forex of 5-percent-plus in 2018, helped by pricing and portfolio initiatives. 

Synergies from the combination of three Coke bottling companies in 2016 continue to flow to the bottom line, the analyst said. 

An underappreciated catalyst for CCE is the likelihood of the company transitioning Coca-Cola Beverages Africa to an independent bottler. If it happens, Hong projects potential accretion ranging from zero to 5 percent to Goldman's 2019 EPS estimate.

Weak Volume Expected To Depress Molson Coors Valuation 

Goldman expects weak volumes for Molson Coors that will likely drive consensus estimates lower and keep valuations depressed, Hong said. 

"We now see downside risk to volume and, with further estimate cuts, cost savings alone are unlikely to be enough to drive improved investor sentiment."

Goldman does not anticipate any material near-term catalysts that could drive a re-rating. 

The firm lowered its Molson Coors estimates for 2018, 2019 and 2020 by 1-4 percent, leaving the estimates 1-5 percent below the consensus.

The Price Action

Coca-Cola European Partners shares have added 4.2 percent year-to-date, while Molson Coors shares have shed about 10 percent.

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