KO, PEP, DPS Stocks React to BMO Blast

Coca-Cola and Pepsi stocks were downgraded on valuation concerns

Jun 7, 2017 at 11:41 AM
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BMO chimed in on a number of high-profile drink stocks today. The brokerage firm downgraded The Coca-Cola Co (NYSE:KO) to "market perform" with $46 price target, saying the Dow stock is "near peak valuation." PepsiCo, Inc. (NYSE:PEP) also saw its rating lowered to "market perform" and its price target to $120 on valuation concerns. Dr Pepper Snapple Group Inc. (NYSE:DPS), meanwhile, was upgraded to "outperform" and its price target was raised to $105, with the brokerage firm noting the stock's "attractive entry point." Here's a closer look at how shares of KO, PEP, and DPS are reacting to the analyst attention.

KO Stock Trading at the Bottom of the Dow

Coca-Cola stock was last seen trading down 1% at $45.53, one of the top decliners on the Dow. Longer term, though, KO shares have surged more than 13% since hitting a year-to-date low of $40.22 in mid-February, and notched an annual high of $46.06 yesterday.

And while most analysts remain on the sidelines with a tepid "hold" recommendation, one KO option trader today is betting on Coca-Cola to hold above $44 over the next seven weeks -- home to the stock's 40-day moving average and late-July bear gap highs. Specifically, Trade-Alert indicates a block of 5,000 July 44 puts was sold to open earlier for an initial net credit of $120,000 (number of contracts * $0.24 premium collected * 100 shares per contract).

PEP Options Traders Bet On Higher Highs

PEP is trading 0.4% lower at $117.21, at risk of closing south of its 10-day moving average for the first time since May 9. However, Pepsi shares have put in a strong overall performance in 2017, up 12%. Plus, several convincing bounces off its rising 40-day moving average in late April and early May helped send PEP stock to a record high of $118.12 on May 30.

PEP options traders have been targeting even higher highs in recent weeks. The stock's September 125 call has seen the biggest rise in open interest over this time frame, with 21,802 contracts added. Data from the major options exchanges confirms buy-to-open activity, meaning they expect Pepsi shares to be trading north of $125 by September options expiration.

DPS stock Stuck in Tight Trading Range

Dr Pepper Snapple stock is up 0.6% at $92.81, but still has yet to fill its late-April earnings bear gap. While the shares are maintaining a 2.5% year-to-date lead, they have more recently been stuck trading between their 30-day and 40-day moving averages.

While DPS options volume is relatively light -- open interest is composed of just 6,036 contracts, in the 22nd annual percentile -- sentiment on other parts of Wall Street is noticeably skewed toward the skeptical side. Short interest, for instance, jumped 10.6% in the most recent reporting period, while nearly three-quarters of covering analysts maintain a "hold" or "sell" rating, as of last night's close.

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