Companies and Brands

Why BMO Capital Markets Is Downgrading Beverage Stocks

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This past week, one analyst issued a few calls that might be game changers in the beverage industry. In fact, the firm believes that a couple of these stocks are about to slow way down, with a smaller stock in the group taking the top spot. Although a sell-off is not expected, investor focus is expected to shift more toward safety.

We have taken a close look at this recent report from BMO Capital Markets and included some of the highlights from the report. 24/7 Wall St. has also included some color on the stock as well as a recent trading history and consensus target.

Coca-Cola Co. (NYSE: KO) was named first in the report, as the stock was downgraded to Market Perform from Outperform with a $46 target price (versus a $45.98 prior closing price). BMO had this to say about Coca-Cola in May:

Though below-target EPS growth in 2017/18 is disappointing and would prevent a material recovery in KO stock, we are encouraged by incoming CEO James Quincy’s willingness to challenge, and potentially reduce, KO’s reliance on carbonated soft drinks and reorient the product portfolio to better align it with evolving preferences.

Shares of Coca-Cola closed the week out at $45.32. It has a 52-week trading range of $39.88 to $46.06 and a consensus analyst target price of $45.50.

PepsiCo Inc. (NYSE: PEP) was downgraded to Market Perform from Outperform with a $120 price target (versus a $117.70 close). The firm said that PepsiCo’s consistent, predictable operating performance, despite difficult global macro environments, solidifies its spot as a core staples holding. BMO expects its earnings outperformance to continue to be supported by its broad-based growth, margin expansion opportunities and upside to cost savings target.

Shares closed trading on Friday at $115.94. PepsiCo has a 52-week range of $98.50 to $118.12 and has a consensus target price of $122.19.

Dr Pepper Snapple Group Inc. (NYSE: DPS) was upgraded to an Outperform rating from Market Perform with a $105 price target (versus a $92.29 close). The firm thought that while the company’s second consecutive quarter of softer-than-expected core performance is worrisome, it believes that the key enablers of its predictable earnings model remain in place: rational competitive landscape, benign commodities, plentiful cost savings and solid management team.

Shares ended the week at $91.40 apiece, with a consensus price target of $100.40 and a 52-week range of $81.05 to $99.47.

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