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Coca-Cola upgraded by Barclays on turnaround plan focusing on smaller packaging, lower calories

Key Points
  • Barclays raises its rating to overweight from equal weight for Coca-Cola shares, saying its new product changes will lead to sales growth next year.
  • "KO's transformation should drive sustainably better growth, which in turn should yield a higher valuation premium," the firm says.
James Quincey
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Coca-Cola shares will rise due to its new business turnaround plans, according to one Wall Street firm.

Barclays raised its rating to overweight from equal weight for Coca-Cola shares, saying its new product changes will lead to sales growth next year.

"KO is executing a thoughtful business transformation that's among the most comprehensive we've seen," analyst Lauren Lieberman said in a note to clients Thursday. "KO's transformation should drive sustainably better growth, which in turn should yield a higher valuation premium."

Coca-Cola shares are underperforming the market this year. Its shares declined 9.4 percent year to date through Wednesday compared with the S&P 500's 1.8 percent return.

The beverage company's stock is up 1.6 percent Thursday.

Lieberman raised her price target to $48 from $45 for Coca-Cola shares, representing 15.5 percent upside to Wednesday's close.

Improving sales growth "could be like a match to fire. We haven't seen what the operating leverage at Coke should look like," Lieberman said on CNBC's "Halftime Report" Thursday. "It's been a long time since they've grown revenue 5 percent and when they do it with an asset light model, it should look very different than what we've seen in the past."

Citing Coke's plans to use smaller packages for soda drinks and to focus more on lower-calorie beverages, she predicted the company will return to an annual sales growth of about 5 percent in 2019 and 2020 after a more than 10 percent revenue decline this year.

"Should KO deliver the results that we are expecting, we think it deserves a greater valuation premium versus the last decade and recent past, particularly as the rest of the group is under pressure," she said.

— CNBC's Michael Bloom contributed to this story.

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