Amid tough macroeconomic conditions, many investors have turned to high-quality dividend payers like Coca-Cola (KO). Now some analysts are saying Coke’s valuation may have gotten ahead of itself.
J.P. Morgan downgraded Coke from Overweight to Neutral, citing negative revisions due to foreign exchange, interest income and a tough macro environment. The firm lowered its price target to $76 from $80.
“While Coke�s overall fundamentals are unquestionably amongst the best in our group, we think the valuation more than reflects that,” wrote analyst John Faucher, in a note.
Consensus will likely come down more than investors realize, with foreign exchange driving the reductions, Faucher added. J.P. Morgan is assuming that foreign exchange will be a 3% hit to 2012 earnings, versus its previous estimate of a 1% to 2% boost.
“With rates coming down and Coke lowering its Brazilian real exposure, we expect interest income to fall by $30 million sequentially in both Q3 and Q4,” Faucher wrote. “This hits 2011 by three cents and 2012 by another five cents.”
Coke is up almost 40% since July 2010, Faucher noted, outperforming the S&P 500 by more than 25%. Shares trade at 17 times J.P. Morgan’s 2012 estimate, which the firm considers too steep.
Coke shares were down 2.8% at $65.66 in afternoon trading.
No comments:
Post a Comment