The rating agency, Standard & Poor’s Ratings Services (“S&P”) has upgraded its ratings outlook on The Coca Cola Company (KO) on the back of the company’s strong operations and credit quality.
Despite the prevailing market turmoil, S&P has revised Coca Cola’s outlook to “positive” from “stable” and reiterated “A+” long-term corporate credit and “A-1″ short-term corporate credit and commercial paper ratings. The ratings agency continues to expect robust performance from Coca Cola even in the uncertain economic environment.
Coca Cola recently reported strong operating earnings of $1.03 per share in the third-quarter 2011, ahead of the Zacks Consensus Estimate by a penny. It was also higher than the year-ago EPS by 12%. The results were encouraged by strong growth outside the U.S. and in emerging markets. Coca Cola also sold more drinks in each region during the quarter and continued to gain market share in North America from rival PepsiCo Inc. (PEP).
According to S&P, Coca Cola’s acquisition of Coca-Cola Enterprises Inc. (CCE)’s North American bottling operations has led to expansion and stands to benefit from the manufacturing and distribution efficiencies in US.
Additionally, the rating agency stated that Coca Cola has the ability to attain an annual revenue growth in the range of low to mid-single-digit, despite the ongoing pressure on its EBITDA margin. S&P also believes that the company’s cash flows will be able to retain the credit quality to support a higher rating.
Coca Cola currently holds a Zacks #3 Rank, which translates into a short-term Hold rating. On a long-term basis, we maintain a Neutral rating on the stock.
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