UBS Cuts Estimates, Targets On Beverage Names Ahead Of Q2 Results

UBS analyst Stephen Powers cut estimates for PepsiCo, Inc. (NYSE: PEP), Constellation Brands, Inc. (NYSE: STZ), The Coca-Cola Co (NYSE: KO) and Dr Pepper Snapple Group Inc. (NYSE: DPS) ahead of second quarter results on weaker developed markets.

"Near-term, we expect decelerated U.S. demand, driven by adverse spring weather trends. In Europe, we anticipate a softer pricing environment, driven by markets such as Germany, Italy, and France," Powers wrote in a note.

Despite these challenges, the analyst doesn't expect competitive conditions to intensify to an excessive degree, though noted that "we may see the sector partially spend back recent commodity benefits near-term to regain momentum."

Long-term, the analyst said the industry continues to trend in a generally healthy direction.

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For Pepsi, Powers cut the price target to $113 from $114 lowered his FY16 organic growth estimate to +3.5 percent from +4.1 percent and EPS estimate to $4.78 from $4.82 prior). The analyst also trimmed his second quarter organic growth view to +3 percent from +4 percent, and EPS falls from $1.31 to $1.29.

For Constellation Brands, the analyst trimmed his price target to $164 from $173 as it signs of slowing growth most recently.

The analyst slashed FY17 organic growth estimate to +7.6 percent from +8.7 percent. He also cut EPS view to $6.30 (vs. $6.36 prior)—within STZ's $6.05-6.35 guidance range.

Further, Powers also lowered price targets for Coca-Cola by $1 to $50 and Dr Pepper Snapple also by $1 to $93. For Coca-Cola, the analyst now models +3.6 percent 2016 organic growth (vs. +3.7 percent prior), and $1.95 EPS (vs. $1.96 prior). Powers also slashed 2016 DPS organic growth to +3.3 percent from +3.5 percent and EPS view to $4.36 from $4.39.

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