Morgan Stanley Analysts Favor Coca-Cola

Morgan Stanley analysts have elevated Coca-Cola’s stock to their Top Pick in the beverages sector, replacing Pepsi. They also raised the price target for Coca-Cola Co (NYSE:KO) shares from $70 to $78, indicating approximately 10% upside from recent levels.

“We continue to like KO here in an absolute sense and even more relative to a group struggling with slowing OSG (organic sales growth), as Coke’s fundamentals increasingly disconnect favorably from the group,” analysts said in a note.

The analysts observe that stock selection within the beverage sector has been difficult, with “alpha” becoming harder to identify due to a division between stocks with higher relative valuations—those with solid visibility but limited upside after recent gains—and those suffering from depressed valuations and fundamental pressures.

Morgan Stanley regards Coca-Cola as a distinct “tweener” option, believing it is well-positioned to achieve strong, above-consensus, and above-peer long-term OSG in what they term a “Topline Landing” industry scenario, particularly as industry pricing trends weaken.

The analysts also highlight that Coca-Cola offers an attractive valuation, generally trading in line or at relative discounts compared to long-term averages and key large-cap peers, despite improving fundamentals.

Key Advantages of Coca-Cola

Morgan Stanley identifies four critical advantages supporting its overweight rating on Coca-Cola compared to peers:

1. Healthier Volume Growth: This is vital as the industry’s unsustainable pricing trends subside.
2. Strong Pricing Power: This strengthens confidence in Coca-Cola’s ability to sustain a higher organic sales growth rate than competitors over the long haul.
3. Favorable International Trends: Particularly in emerging markets, where growth outpaces North America.
4. Durable Pricing Power and Market Share Gains: Expected to be increasingly significant as broader industry pricing tailwinds weaken.