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Rising European Regulations And Consumer Shifts Will Hinder Profitability

Published
13 Jul 25
AnalystLowTarget's Fair Value
€63.71
18.2% overvalued intrinsic discount
23 Jul
€75.30
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1Y
8.5%
7D
-0.9%

Author's Valuation

€63.7118.2% overvalued intrinsic discount

AnalystLowTarget Fair Value

Key Takeaways

  • Regulatory, consumer, and environmental pressures threaten core product demand, raise costs, and could erode revenue growth and profitability over time.
  • Dependence on The Coca-Cola Company and retail-based distribution limits CCEP's ability to adapt, increasing vulnerability to shifting consumer preferences and agile competitors.
  • Rapid growth in emerging markets, ongoing innovation, and strong operational execution are offsetting European weakness, underpinning earnings resilience and supporting robust shareholder returns.

Catalysts

About Coca-Cola Europacific Partners
    Produces, distributes, and sells a range of non-alcoholic ready to drink beverages.
What are the underlying business or industry changes driving this perspective?
  • Rising regulatory pressure and the increasing prevalence of sugar taxes in both Europe and Asia-Pacific are likely to raise CCEP's compliance costs and directly suppress demand for sugary beverages, which comprise a significant portion of the company's portfolio, potentially resulting in lower revenue growth and net margin compression over the long-term.
  • Accelerating consumer shifts away from carbonated soft drinks toward lower-sugar and alternative beverages could permanently erode the company's core Western European markets, where volume declines are already evident, thereby structurally limiting both topline and EBIT expansion as market share contracts.
  • CCEP's heavy reliance on The Coca-Cola Company's centralized product innovation and branding constrains its ability to adapt rapidly to evolving local consumer preferences, which increases the risk of losing relevancy and pricing power to private label and more agile regional competitors, ultimately weighing down future earnings potential.
  • Growing environmental concerns about single-use plastics and heightened legal and regulatory scrutiny on packaging waste may mandate substantial increases in capital expenditure and packaging costs, reducing the effectiveness of cost savings programs and leading to lower free cash flow and returns on invested capital over time.
  • The industry trend toward direct-to-consumer sales and expanded digital platforms by both multinational rivals and nimble new entrants undermines CCEP's traditional retail-based distribution advantages; over time, this could fragment the market further, thereby compressing profit margins and curtailing earnings growth.

Coca-Cola Europacific Partners Earnings and Revenue Growth

Coca-Cola Europacific Partners Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • This narrative explores a more pessimistic perspective on Coca-Cola Europacific Partners compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
  • The bearish analysts are assuming Coca-Cola Europacific Partners's revenue will grow by 3.9% annually over the next 3 years.
  • The bearish analysts assume that profit margins will increase from 6.9% today to 9.0% in 3 years time.
  • The bearish analysts expect earnings to reach €2.1 billion (and earnings per share of €4.66) 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 bearish analyst cohort, the company would need to trade at a PE ratio of 16.6x 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

Coca-Cola Europacific Partners Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • Strong and accelerating growth in emerging markets such as the Philippines, Papua New Guinea, and the Pacific Islands is driving healthy revenue and operating margin expansion, which offsets weakness in mature European markets and supports overall topline acceleration.
  • Sustained innovation, premiumization, and digital transformation-including investment in AI-driven forecasting, B2B digital platforms, and extensive new product launches-are strengthening execution, improving customer relationships, and boosting revenue per case and operating margins.
  • Robust free cash flow generation and operating leverage, evidenced by 1.8 billion euros in comparable free cash flow and ongoing margin expansion, support high dividend payouts, a new multi-billion euro share buyback, and flexible capital allocation, indicating strong earnings resilience.
  • Portfolio expansion, particularly in growth segments like energy drinks and alcoholic ready-to-drink offerings, alongside efficient marketing alignment with The Coca-Cola Company, are fueling category share gains and strengthening revenue and EBIT outlook for the medium to long term.
  • Continued cost efficiencies and supply chain optimization programs are yielding earlier-than-expected productivity gains, which, together with favorable mix from high-growth markets, underpin improving net margins and long-term earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The assumed bearish price target for Coca-Cola Europacific Partners is €63.71, which represents two standard deviations below the consensus price target of €84.55. 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 more bearish 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 bearish analysts, you'd need to believe that by 2028, revenues will be €22.9 billion, earnings will come to €2.1 billion, and it would be trading on a PE ratio of 16.6x, assuming you use a discount rate of 5.6%.
  • Given the current share price of €84.5, the bearish analyst price target of €63.71 is 32.6% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  • 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.

How well do narratives help inform your perspective?

Disclaimer

AnalystLowTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystLowTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystLowTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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