Blue-chip soda titan Coca-Cola Company (NYSE: KO) slipped into the red this morning after Standard & Poor's last night revised the company's outlook to "negative." The ratings change also affects the Dow component's two main bottling units, Coca-Cola Enterprises (NYSE: CCE) and Coca-Cola Hellenic Bottling (NYSE: CCH). Analyst Jean Stout noted, "Weak economic conditions in select markets and volatile commodity costs have pressured the Coke system's operating performance."
Currently, Coca-Cola's S&P rating is "A+," the fifth-highest investment-grade notch. The downwardly revised outlook indicates that the rating is in danger of being cut over the next one to two years. In response to S&P's "negative" label, CCE postponed pricing a previously announced, $1 billion bond issue.
Stout added that "reduced share repurchases at Coke could restore some financial flexibility to the Coke system," but warned, "weakening macroeconomic conditions, as well as further acquisitions at Coke, CCE, or CCHB will likely further weaken Coke system credit measures."
On the charts, things are looking ugly for Coke shares. KO's down 26% for the year, and its 10-month and 20-month moving averages recently completed a bearish cross -- which indicates that more losses could be in store during the intermediate term. If the stock's under-performance continues, it seems likely that more analysts could downwardly revise their opinions of Coke. According to Zacks, nine out of 11 analysts tracking the shares rank them a Buy or Strong Buy. Any downgrades from this bullish group could exacerbate the security's slide.
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
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Reader Comments (Page 1 of 1)
10-29-2008 @ 1:13PM
Adam Hartung said...
I can't imagine how analysts would be excited about Coke. Perhaps people will keep buying Coke as they delay purchases of autos, refrigerators or furniture. So relatively speaking, Coke may look better. But, a company that has no new growth products and is dependent on either lower commodity prices or higher sales prices to generate more profits is not a good long-term proposition. Coke needs to find more new products in order to re-ignite growth that can justify higher future revenues. We can't depend upon stock repurchases to keep the stock propped up forever. Read more at http://www.ThePhoenixPrinciple.com