Coca-Cola European Partners Has Limited Near-Term Upside

Goldman Sachs’ Judy Hong believes that while the long-term story for Coca-Cola European Partners plc Ordinary Shares (NYSE: CCE) remains intact, there is limited near-term upside to the synergies from the CCE/CCEAG/CCIP merger, while FX continues to act as a headwind.

Hong downgraded the rating on the company from Buy to Neutral, with a price target of $43.

The analyst mentioned that the stock has remained flat since the end of May, as compared to the S&P, which is up 3 percent, with pressure prior to the Brexit vote being offset by outperformance since the vote.

Synergies

“CCE has committed to flowing through €315–€340 million of synergies to the bottom line, which is now embedded in most estimates, in our view,” Hong stated.

Related Link: Coca-Cola West Co., Ltd., Coca-Cola East Japan To Merge

The analyst expects very little EBIT growth for Coca-Cola European Partners through 2018, given that top line growth continues to be muted, while commodity tailwinds are likely to begin to fade and the weakening of the GBP creates a headwind.

Hong also expressed concern regarding the sustainability in Q3 of the volume improvement seen in Q2, expecting modest volume growth of 0.5 percent in 2017 across the company’s markets.

Free Cash Flow

“FCF should remain solid with deleveraging to 2.8X by 2018E. We also see strategic optionality over time once it de-levers as CCE looks to further expand its footprint in Europe or even in higher-growth markets,” the analyst pointed out.

In Monday's pre-market, Coca-Cola European was down 1.62 percent at last check, trading at $38.22.

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