Top-Line Headwinds For Coca-Cola Likely To Fizzle Out

The Coca-Cola Co (NYSE: KO) shareholders have likely been disappointed by the company’s lackluster top-line growth so far this year. Coca-Cola even recently reduced its full-year growth guidance from +4-5 percent to +3 percent. However, UBS analyst Stephen Powers still sees major opportunities ahead for the company and remains bullish on the stock.

“While we too have been disappointed, we retain forward optimism based on the likely transitory nature of its headwinds (particularly BIG’s performance in China), and the opportunity to gain share/increase portfolio exposure in Stills,” Powers explained.

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Powers admits that the company’s humdrum performance so far in 2016 will likely make investors skeptical in the near term. However, looking ahead to fiscal 2017, he sees three major positive developments:

1. Top-line improvement.
2. Sustained productivity.
3. Intensified refranchising.

Risks to UBS’ bullish outlook include continuing macro headwinds, poor portfolio management and poor management of system-wide change.

Powers noted that Coca-Cola remains on track to deliver more than $600 million in cost-cutting in fiscal 2016.

So far this year, Coca-Cola’s stock has lagged the overall market, delivering a -1.7 percent return. Rival PepsiCo, Inc. (NYSE: PEP)’s shares are up 6.1 percent on the year.

UBS maintains a Buy rating and $50 price target on Coca-Cola.

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