Urbanization And Digital Trends Will Fuel Premium Beverage Appeal

Key Takeaways

• Market dominance in Southeast Asia, product innovation, and digital transformation are expected to drive significant revenue and margin growth well beyond consensus expectations.
  
• Strong cash discipline, sustainability initiatives, and capital returns position the company for resilient earnings growth and higher stock market valuation.
  
• Heavy dependence on sugary drinks, mature markets, and sustainability challenges expose the company to regulatory, competitive, and profitability risks amid shifting consumer trends.

Catalysts

Produces, distributes, and sells a range of non-alcoholic ready to drink beverages.

• Analysts broadly agree that the Philippines integration could lead to robust operating margin expansion and double-digit volume growth, but this may substantially underappreciate the long-term compounding impact from urbanization and population growth in Southeast Asia, where sustained market dominance and category premiumization could drive outsize increases in both revenue and net margins far beyond current forecasts.
  
• Analyst consensus expects the €1 billion share buyback to boost earnings per share, but with a structurally higher free cash flow conversion rate, a healthy balance sheet, and ongoing cash discipline, CCEP is positioned to maintain or even accelerate capital returns, amplifying EPS growth and supporting a rerating of the stock over the next several years.
  
• The company's accelerated digital transformation-encompassing leading B2B portals, AI-driven supply chain optimization, and direct-to-consumer engagement-can deliver strong structural competitive advantages, increasing customer loyalty and optimizing price/mix, which should unlock outsized revenue growth and higher operating margins over time.
  
• Continued product portfolio innovation, including new launches in energy, functional beverages, sports, and ARTD (alcohol ready-to-drink), aligned with health and wellness trends and the rising middle class in Asia-Pacific, is likely to drive premiumization and disproportionately enhance revenue and profit growth, particularly as these segments see high-double-digit category expansion.
  
• CCEP's industry-leading sustainability initiatives-including AI-enabled ingredient reduction, pioneering packaging, and decarbonization-are likely to preempt regulatory risks and attract conscious consumers, thus supporting resilient volumes, strengthening pricing power, and reducing long-term costs to further augment net margins and earnings durability.

Coca-Cola Europacific Partners Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Coca-Cola Europacific Partners compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Coca-Cola Europacific Partners's revenue will grow by 5.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 6.9% today to 9.9% in 3 years time.
• The bullish analysts expect earnings to reach €2.4 billion (and earnings per share of €5.4) by about July 2028, up from €1.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 24.0x on those 2028 earnings, down from 27.2x today. This future PE is lower than the current PE for the US Beverage industry at 37.8x.
• Analysts expect the number of shares outstanding to grow by 0.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.6%, as per the Simply Wall St company report.

Coca-Cola Europacific Partners Future Earnings Per Share Growth

Risks

• The company's heavy reliance on Coca-Cola branded high-sugar beverages exposes it to long-term regulatory risk and evolving consumer preferences, as ongoing increases in sugar taxes, stricter health labeling, and rising health consciousness will likely constrain both volume growth and revenue over time.
  
• Secular consumer trends toward healthier, low
• or no-sugar, and non-carbonated beverages may erode market share, and while the company touts innovation and portfolio expansion, the core business remains concentrated in carbonated soft drinks, making overall earnings growth vulnerable to these shifts.
  
• CCEP's focus on mature European and Pacific markets, despite recent expansion into the Philippines and investments in Indonesia, increases its exposure to regions with limited demographic and consumption growth; market maturity and economic headwinds threaten the long-term sustainability of revenue growth.
  
• Intensifying competition from private label and health-focused niche beverage brands, as well as retail consolidation boosting supermarkets' bargaining power, will likely put pressure on pricing and distributor margins, threatening CCEP's long-term net margins.
  
• Growing pressures for sustainability-such as regulatory and public scrutiny over single-use plastics and water usage-could drive substantial compliance and capital investment costs, weighing on profitability and potentially requiring significant reinvestment that reduces free cash flow and earnings over the long run.

Valuation

• The assumed bullish price target for Coca-Cola Europacific Partners is €105.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Coca-Cola Europacific Partners's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €105.0, and the most bearish reporting a price target of just €60.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €23.7 billion, earnings will come to €2.4 billion, and it would be trading on a PE ratio of 24.0x, assuming you use a discount rate of 5.6%.
• Given the current share price of €84.5, the bullish analyst price target of €105.0 is 19.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.