Changes are coming at Coca-Cola and not all of them may be good for the soft drink giant, according to UBS analysts who downgraded the shares.
UBS cut Coke from buy to neutral, even while raising the price target from $50 to $51, implying 3.6 percent upside from Wednesday’s close. Shares were off marginally in premarket trade Thursday.
“KO is a stock for stable earnings growth to ride out defensive times but change is in the air as price increases set-in, the company pursues a transformational non-core deal (Costa), refranchising nears completion and a new CFO takes the helm,” UBS said in a research note.
The company in August announced the $5.1 billion of Costa, an international coffee chain with more than 3,800 locations worldwide. The deal is likely to close in the first half of 2019 and will allow Coke to compete in both the hot and cold drink spaces, though it’s unlikely Costa spots will open in the U.S. anytime soon.
With six deals behind it in 2018, Coke CEO James Quincy told CNBC earlier this week that investors shouldn’t expect the same pace to continue in the year ahead.
UBS said the changes the company underwent this year will pose challenges.
“We see modest risk that any one of moving parts could allow management to back away from long-held global growth targets. Valuation is back above its historical premium to the group which we believe reflects [improving] operating metrics following refranchising as well as the start of a defensive rotation,” the analysts said.
Coca-Cola’s stock has been a strong performer this year, rising 7.3 percent through Wednesday, easily outperforming the S&P 500, which is off 0.8 percent, and the consumer staples sector, which has fallen 4.2 percent. Its average target price among analysts is $51.63, according to FactSet.