UBS Ups Coca-Cola To Buy, Says It May Finally Break Out

In a report published Tuesday, UBS analyst Stephen Powers upgraded the rating on The Coca-Cola Co (NYSE: KO) from Neutral to Buy, while raising the price target from $44 to $48. The analyst believes that although the stock has been range-bound since 2012, the share price is likely to rise beyond this range over the coming 12 months, with the stock offering a significantly positive risk/reward profile.

"Our optimism is driven by a thesis that: 1) Pricing/productivity have taken firm root in KO's culture, 2) Optionality exists on future structural changes within the Coca-Cola System, 3) KO volumes/EPS should find relief if macros ease," Powers explained, while mentioning that there were "multiple paths to upside" for the stock.

The analyst believes that Coca Cola has made progress over the past 10 months, increasing productivity, improving focus on price realization and instilling the right values within its employees through a shift in incentives.

In addition, the company is expected to raise its cost cutting target from the current $3 billion to over $4 billion, which could drive about 9 percent to the EBIT for FY17.

"If KO makes good on US profit improvements, we believe KO could also show greater/faster progress on U.S. refranchising. At the same time, we see the potential for a solution arising quickly in Europe related to Germany as well," according to the UBS report.

If the company is successful in both these areas, the analyst believes that it could lead to significant upside to the stock valuation.

"We raise our EPS outlook modestly on rising expectations surrounding price realization and productivity, but we see more as possible if KO continues to execute and the macros cooperate," Powers added.