Coca-Cola Lifts 2026 Outlook After Strong Q2, but Shares Still Overvalued

Coca-Cola Reports 6% Organic Growth, Ups 2026 Forecast

Coca-Cola posted a 6% increase in organic revenue for the second quarter, powered by a 2% rise in price/mix and a 4% increase in concentrate sales. Comparable operating profit jumped 9.0%, with margins expanding 90 basis points to 35.6%, and comparable earnings per share rose 11% to $0.97.

The company cited a successful World Cup activation campaign, favorable weather, and an easy comparison from the prior year. Gains were broad-based across geographies and categories. On the back of this momentum, management raised its full-year 2026 organic revenue growth guidance to 5% (up from 4%-5%) and comparable EPS growth to 9%-10% (previously 8%-9%).

Despite expectations for more pressure in the second half, the higher forecast signals confidence. The company also disclosed a ransomware attack on its Fairlife subsidiary (roughly 2% of firmwide revenue) that temporarily halted production. Operations have since mostly resumed, with no material impact on product availability expected.

Why Morningstar Still Sees Coca-Cola as Overvalued Despite Strong Quarter

Strong Pricing Power and Volume Growth

The 2% price/mix gain alongside 4% concentrate volume growth demonstrates Coca-Cola's ability to push through price increases even as consumers remain strained. Combined with the World Cup boost and easy year-ago comparisons, it shows the brand's resilience and global reach.

Innovation Hubs to Tailor Local Products

Coca-Cola is building innovation hubs across its footprint, which we think will help it tailor new products to local market tastes. This strategy supports the company's expectation of mid-single-digit organic revenue growth over the long term, positioning it to capture demand in diverse markets more effectively.

Valuation: Overvalued Despite the Run-Up

Morningstar expects to raise its fair value estimate by a mid-to-high-single-digit percentage, but even after that increase, shares are seen as slightly overvalued. The stock has risen more than 25% year to date, far outpacing the 9% gain in the Morningstar US Market Index. While fundamentals are solid, the market may have priced in too much optimism.

PepsiCo Offers More Attractive Upside

The analysis points to more attractive upside in wide-moat PepsiCo's shares, as the market underappreciates its dominant snack business. With PepsiCo also focused on innovation and affordability, its top line is expected to grow mid-single digits annually over the next decade, offering a potentially better risk-reward proposition for investors.

Fairlife Cyberattack: A Manageable but Notable Risk

The ransomware attack on Fairlife, while production has mostly resumed and no material impact on product availability is forecast, serves as a reminder of operational vulnerabilities. The incident is small relative to total revenue, but any recurrence or lingering supply chain hiccup could dent brand confidence.

What Investors Should Watch: PepsiCo's Snack Advantage and Fairlife Risks

• Coca-Cola's full-year 2026 EPS growth is now guided at 9%-10%, but the company expects more pressure in the second half. Watch for any downward revision in the next quarterly update that could undermine the stock's elevated valuation.
• Morningstar expects to raise its fair value estimate, but even after that increase shares will likely remain slightly overvalued. Current investors should avoid chasing the recent rally; consider taking profits if the position has become outsized.
• PepsiCo's shares offer more attractive upside, particularly given its underappreciated snack business. Rotating some exposure from Coca-Cola into PepsiCo could improve portfolio risk-reward if valuation concerns intensify.
• The Fairlife cyberattack, while production has largely resumed, highlights operational risk. Monitor any lingering supply chain issues or signs of reputational fallout that could weigh on the subsidiary's contribution.