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Investing.com -- Jefferies analysts hiked their Coca-Cola (NYSE:KO) stock rating to Buy from Hold and lifted the price target to $75 from $69.
The soft drink giant’s shares climbed 1% in premarket trading Thursday.
Jefferies cited Coca-Cola’s robust fundamentals and anticipated cash flow increase as key reasons for the upgrade.
“The business is in great shape,” analysts led by Kaumil Gajrawala said in a note. “Volumes are compounding, pricing has been earned, and cash flow is about to inflect... meaningfully.”
Analysts noted that despite the recent surge in the dollar potentially revising 2025 earnings per share (EPS) figures slightly lower, they foresee only a 2-cent reduction to $2.92, which is a 2.2% year-over-year increase. They said this minor impact is seen as already factored into the current stock price, trading at 21.5 times its earnings.
Jefferies’ team believes the fourth quarter will be a clearing event for Coca-Cola stock that could attract investors seeking quality at a reasonable price.
“We think Q4 will provide the all clear to own shares as the impact will likely only be $0.02,” analysts continued. “Coke has the levers to manage higher interest expense and fx pressure, and deliver dollar-based EPS growth. It has been a hallmark of CEO Quincey’s strategy for a decade.”
The investment firm argues that Coca-Cola is one of the few companies within its coverage where there’s confidence that volumes will continue to compound globally. Furthermore, the company has successfully implemented pricing strategies and is experiencing an acceleration in product mix.
With organic sales growth (OSG) projected to remain near the high end of the company’s long-term algorithm, Jefferies advocates for a higher valuation multiple for Coca-Cola shares.
Looking ahead to 2026, Jefferies estimates a substantial increase in Coca-Cola’s free cash flow (FCF), projecting it to quadruple to approximately $12.5 billion. This growth is attributed to the settlement of large outstanding bills expected within the next six months.
The firm expects that the mix of dividend growth and potential increases in share buybacks, in the absence of any significant acquisitions, will contribute to EPS growth.
The report also addresses valuation concerns, noting that Coca-Cola shares have fallen approximately 15% from their highs, now trading at 20 times Jefferies’ estimated 2026 earnings.
“As we look for the most underpriced high-quality asset in this sell-off, we think it is this business. KO shares are trading below the 10-year average, despite an increasing likelihood they will outperform peers,” analysts said.