Coca Cola stock jumps on U.B.S. upgrade

by FoodBusinessNews.net Staff
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NEW YORK — Coca Cola Co. shares rallied on Friday after investment bank U.B.S. issued a bullish report predicting the soft drink maker’s business will improve, driven by aggressive marketing and better execution in its worldwide bottling operations.

Shares of Coca Cola, a Dow Jones Industrial Average component, rose 91c, or 2.1%, to $44.44 on the New York Stock Exchange, where it was among the most actively traded issues.

"We expect accelerating sales growth from heavy marketing and better execution to lead to multiple expansion for Coca Cola shares," U.B.S. wrote in a client note. The investment bank also lifted its opinion on Coke to "buy" from "neutral" and boosted its stock price target to $53 from $46.

Coca Cola last November said it would spend from $350 million to $400 million on marketing and developing new products, the bulk of which is set to hit consumers in this year's second half.

"With share trends already improving in most regions, we expect this marketing push to accelerate top-line growth into 2006," U.B.S. wrote.

The company also will benefit from a globally coordinated marketing campaign, which will cut costs from multiple regional campaigns and provide consistency as it expands into new markets and develops new drinks, U.B.S. said.

The investment bank also said Coca Cola was showing improved execution, evidenced by market share gains in 15 of its top 16 markets in the just-ended second quarter, and stronger performance in its global bottling businesses.

Atlanta-based Coca Cola owns large stakes in regional bottlers and distributors Coca Cola Enterprises Inc., Coca Cola Femsa SA de CV, Coca Cola Hellenic Bottling Co SA and Coca-Cola Amatil. The stock prices of the publicly traded bottlers have generally outperformed Coca Cola's stock since mid-2004, another sign of strong field execution, U.B.S. said.

A financially stronger bottling network allows Coca Cola to spend less on funding its bottlers and more on marketing. Greater marketing investment in turn may spur stronger brand loyalty, which would allow Coca Cola to raise prices and increase drink concentrate prices to its bottlers, U.B.S. said.

"Health of the bottling system, driven by better execution, higher bottling investment and more aggressive marketing for Coca Cola can lead to margin opportunity for the parent," U.B.S. said in the note.

Coke stock is up 8% so far this year, adjusted for dividends. By contrast, shares of rival PepsiCo Inc. have risen 6%, while the Dow Jones Industrial Average has declined nearly 2% over the same period.

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