Deutsche Bank Upgrades Coca-Cola and PepsiCo Stocks

Investing.com — Deutsche Bank (ETR:DBKGn) is becoming more optimistic about the non-alcoholic beverage sector, upgrading stocks of Coca-Cola Company (NYSE:KO) and PepsiCo (NASDAQ:PEP) to Buy.

Both stocks saw a nearly 1% rise in premarket trading on Thursday.

Deutsche analysts point out that Coca-Cola has shown consistent positive volume growth over the past three years, which is expected to continue in fiscal 2024 (FY24), despite facing significant price pressures.

Market shares are performing well, and Coca-Cola has maintained strong control over critical internal factors, including brand reputation, innovation, and productivity. Even with external macroeconomic challenges such as foreign exchange fluctuations and consumer health issues in a volatile global economy, KO's strategy focusing on affordability and premiumization is predicted to be beneficial.

"KO has exhibited its capability to navigate through hyperinflation and FX pressures effectively – consistently achieving dollar-based EPS growth," analysts state.

While some of KO's ventures beyond traditional carbonated soft drinks have not met expectations, its main sparkling franchise and innovations like the fairlife platform are experiencing positive momentum.

Potential distractions from tax litigation are believed to be already reflected in KO's current valuation. Deutsche Bank expects a significant improvement in the company’s free cash flow conversion starting in the latter half of 2025.

The firm projects a price target of $70 for Coca-Cola stocks.

PepsiCo has encountered distinct challenges, such as sluggish momentum in North America, volume weakness within the FLNA segment, and loss of market share in PBNA. Growth in its international business has also decelerated.

Despite these challenges, Deutsche Bank argues that these risks are well accounted for in the present valuation, which stands under 20x FY24 EPS without any expected growth.

Looking ahead, Deutsche Bank predicts that PepsiCo's productivity and cost flexibility, alongside its international business growth, will buffer earnings against rising foreign exchange challenges.

The bank also looks forward to targeted pricing and commercial investments boosting consumer confidence and spending in 2025, setting a price target of $184 for PepsiCo shares.

Additionally, they have upgraded Keurig Dr. Pepper stock to Buy.