Big Growth Comes In Small Package For Coca-Cola

Coca Cola Co's (NYSE: KO) mini cans are delivering maxi results.

Sell-side analysts praised the American soft drink icon for yet another strong quarter of organic growth — the eighth straight with growth of 5% or more — with smaller packaged items such as the mini cans showing particularly good results.

The Analysts

Bank of America analyst Bryan Spillane reiterated a Buy rating and $60 target price.

Wells Fargo’s Bonnie Herzog reiterated an Outperform rating and $60 target price.

BMO’s Amit Sharma kept a Market Perform rating on the stock but increased the target price from $52 to $55.

The Theses

Spillane said the strong organic sales were a reminder that Coke is sustaining momentum based on innovation and marketing investments, citing in particular the smaller packaging move. Mini-can sales are growing at more than 15% year to date, and the company is also seeing solid interest in its Coca-Cola Energy drink. Coke Zero Sugar volumes were also up by about 14% year to date.

That attempt to broaden beyond its familiar, though traditional cola product, is a key as the Atlanta based icon re-makes itself.

“We continue to believe KO should get a premium given its on-going transformation to a total beverage company, which should yield consistent organic sales growth and attractive margins and returns over time,” Spillane wrote in a note.

Forex Headwind

Analysts noted the strong sales growth in the just reported third quarter was offset some by a foreign exchange headwind that kept EPS in line with expectations at 56 cents.

Herzog said most analysts were watching the company’s long-term outlook, and she came away more confident Coke can continue to deliver top-line growth sustainability and new products.

“We think 4-6% organic sales growth is very doable given KO’s strong revenue growth management initiatives as well as momentum across existing products,” Herzog wrote. “All-in, we’re very upbeat.”

Sharma also acknowledged the top-line momentum, and agreed on a 4-6% long-term organic growth outlook, but the analyst remains a little more bearish given the headwind from the ongoing strength of the U.S. dollar.

“While top-line momentum and apparent insulation to potentially softening global growth outlook is attractive, we find it hard to argue for further multiple expansion from already-peak levels … given expectation for another year of below-algorithm EPS growth,” Sharma wrote in a note.

Price Action

Coca-Cola shares were down 1.7% Monday to $53.84.

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