Investing.com -- Deutsche Bank (ETR:DBKGn) is turning more bullish on the non-alcoholic beverage sector, upgrading Coca-Cola Company (NYSE:KO) and PepsiCo (NASDAQ:PEP) stocks to Buy.
Both stocks rose nearly 1% in premarket trading Thursday.
Deutsche analysts note that Coca-Cola has displayed consistent positive volume growth over the last three years, including the forecast for the fiscal 2024 year (FY24), even with significant pricing.
Market shares are trending favorably, and the company has maintained control over key internal factors such as brand reputation, innovation, and productivity. Despite macroeconomic challenges like foreign exchange headwinds and consumer health in a volatile global economy, KO's focus on affordability and premiumization opportunities is expected to be advantageous.
“KO has demonstrated an ability to manage effectively through hyperinflation and FX headwinds in the recent past—steadily delivering consistent dollar-based EPS growth,” analysts said.
While some of KO's ventures outside of core carbonated soft drinks have not met expectations, its primary sparkling franchise and innovations like the fairlife platform are showing positive momentum.
Potential distractions from tax litigation are seen as already reflected in KO's valuation. Deutsche Bank anticipates a notable improvement in the company’s free cash flow conversion beginning in the second half of 2025.
The firm has set a price target for the stock at $70.
PepsiCo has faced its own set of challenges, including a lack of momentum in North America, volume softness in the FLNA segment, and market share issues in PBNA. International business growth has also slowed.
Nevertheless, Deutsche Bank believes these risks are now fully recognized in the current valuation, which is under 20x FY24 EPS with no growth expected.
Looking forward, Deutsche Bank expects PepsiCo's productivity and cost flexibility, along with its international business momentum, to provide a buffer for earnings despite increasing foreign exchange headwinds.
The bank also anticipates that targeted pricing and commercial investments will lead to improved consumer confidence and spending in 2025.
Analysts set a $184 price target for PepsiCo shares.
They have also upgraded Keurig Dr. Pepper stock to Buy.