A Safe Haven in the Trade Storm - Coca Cola

Ahead of the Q1 earnings report, JP Morgan raised the target price for Coca Cola, stating that the company will become a safe haven in turbulent markets.

Analysts believe that despite facing tariffs and macroeconomic headwinds, Coca Cola is expected to achieve organic sales growth (OSG) by 2025, thanks to its strong defensiveness, diversified geographical layout, limited tariff impact, and ability to respond to dynamic operating environments. The report maintains the company's rating at "Overweight" and raises the target price to $78, indicating a 6% upside from the current stock price, while also providing an approximate 3% dividend yield.

"Safe Haven Amid Tariff Storm"

In a report dated April 21, JP Morgan stated that investors should focus on Coca Cola's resilience in the current economic environment.

Analysts noted that Coca Cola has demonstrated its exceptional operational capabilities over the past five years, able to navigate various dynamic operating environments globally while consistently achieving its revenue targets.

This capability is supported by its extensive geographical distribution, with the U.S. accounting for only about 17% of its total system sales, meaning that weak performance in a specific market is often offset by strong performance in other markets. Additionally, the company can adjust and focus its pricing/packaging strategies based on consumer demand for affordability and/or premiumization. These efforts are backed by years of investment in marketing, innovation, and business execution.

Since CEO James Quincey took office in 2018, the company has achieved a 7.7% compound annual growth rate (CAGR) in organic sales through continuous investment in marketing, innovation, and business execution, and has realized a 12% growth in earnings per share on a currency-neutral basis. This "all-weather" strategy has allowed Coca Cola to maintain stable growth in a dynamic global operating environment.

Limited and Controllable Tariff Impact

JP Morgan believes that the overall impact of tariffs on Coca Cola is limited and controllable.

From a tariff perspective, as it is a finished goods business, the company's juice segment is the most directly affected.

Coca Cola's juice sources include both international and local suppliers. Imports from Brazil (the largest juice exporter) will incur a 10% tariff, while imports from Mexico are currently exempt. In the channels tracked by NielsenIQ, juice accounted for approximately 4.5% of Coca Cola's sales over the 52 weeks ending March 22, 2025.

Coffee imports may also be somewhat affected, although this represents a much smaller proportion of the product mix (<1% of tracked channel revenue).

Considering the 25% tariffs on steel and aluminum, if bottlers are forced to raise prices to offset rising costs, the U.S. market may be somewhat impacted. Analysts believe that Coca Cola helps bottlers cope with these impacts through its cross-enterprise procurement team, and if aluminum costs come under pressure, it can focus on different packaging types (e.g., placing more emphasis on PET).

Potential to Continue Outperforming the Market in Current Environment

JP Morgan believes that Coca Cola's position as a relatively safe haven allows its stock to perform well in the essential consumer goods sector and the broader market. While the performance of essential consumer goods will heavily depend on macroeconomic and tariff conditions, if the current environment persists, Coca Cola will continue to outperform its peers and the broader market Thanks to its outstanding performance year-to-date (Coca Cola +16.8%, S&P 500 Index -12.3%), Coca Cola's current trading price is over 20% higher than the S&P 500 Index, up from a -4% discount at the beginning of the year.

Nevertheless, this is only slightly above Coca Cola's 10-year average premium relative to the S&P 500 Index. Over the past decade, Coca Cola's trading price has reached a premium of over 50% relative to the S&P 500 Index (during the tech stock sell-off in July 2022).

Relative to its peers, Coca Cola's trading price carries a 15% premium over multinational consumer staples companies, which is above the long-term average. Considering Coca Cola's asset-light business model, it typically performs well in a moderate inflation and soft dollar environment, and its premium may be maintained or expanded.

In terms of financials and valuation, JP Morgan expects Coca Cola's organic sales growth rate to be 5.8% in 2025, above the peer average. Although the first-quarter earnings per share (EPS) expectation has been revised down from $0.72 to $0.70, the full-year EPS remains at $2.96, consistent with market expectations. Additionally, the company expects revenue to reach $48.353 billion in 2025, a year-on-year increase of 3.1%.

In terms of valuation, Coca Cola's price-to-earnings ratio is 24.2 times, slightly higher than other multinational consumer goods giants (such as Procter & Gamble and Colgate), but JP Morgan believes this premium is justified, reflecting its defensive characteristics and strong profitability. Notably, the company also offers an approximate 3% dividend yield, providing additional returns for investors.

PepsiCo Comparison: The Divide Between Defense and Growth

In contrast, PepsiCo's performance appears relatively weaker.

JP Morgan analysts believe that despite its diversified product portfolio in snacks and beverages, the weakness in the U.S. snack market and slowing growth in international markets pose greater growth pressures. In comparison, Coca Cola's defensive characteristics and higher profitability make it more attractive in the current market environment.

JP Morgan maintains a "Neutral" rating on PepsiCo, with a target price of $159, indicating an 11% upside from the current stock price, but lacks short-term catalysts. Notably, PepsiCo's valuation is significantly discounted, with a price-to-earnings ratio of 17.2 times, which is 30% lower than Coca Cola