Investors should increase exposure to companies in the nonalcoholic beverage space, according to Deutsche Bank. Analyst Steve Powers upgraded Coca-Cola , PepsiCo and Keurig Dr Pepper to buy from neutral. He also hiked his price targets on the stocks: Coca-Cola: $70 from $68, implying upside of 11.7% PepsiCo: $184 from $179, signaling a gain of 17.4% Keurig Dr Pepper: $39 from $37, calling for upside of 17.3% “If there is one area where we are more optimistic on the potential for accelerating trends heading into 2025 it resides in restaurant/c-store traffic and more impulse purchasing—dynamics that should work to the advantage of companies operating in the beverage (and snacks) industry with elevated exposure to such channels. KO, PEP, and KDP … all fit this profile,” Powers said. “Add to that historically rational competition over the past decade and relative pricing power … and we see preconditions for outperformance—especially when considering starting-point valuations that remain depressed relative to history and peer subsectors,” he added. The three stocks have struggled in 2024. PepsiCo and Keurig are down 7.7% and 0.2%, respectively, year to date. Dow Jones Industrial Average component Coca-Cola is up just 6.3% for the year, lagging the 30-stock benchmark’s 17.1% advance during that time. KO PEP,KDP YTD mountain KO, PEP and KDP year to date Powers noted that the buy cases for each stock can vary slightly — all three companies share a “common foundation.” For instance, he sees Coca-Cola “winning market share trends globally” along with a positive turnaround in the company’s free cash flow trends. For PepsiCo, he thinks the Frito-Lay North America business can improve as consumers get more used to higher prices. For Keurig, “we see depressed valuation in the near-term … against stable/”safe” FY25 earnings forecasts,” Powers said. Analysts are generally bullish on Coca-Cola, with 17 of 26 covering it giving the beverage giant a buy or strong buy rating, per LSEG. Sentiment is more mixed around PepsiCo and Keurig. The former has hold ratings from 13 of 23 analysts covering it, while 10 of 19 covering the latter say it is a hold.
