Goldman Sachs downgraded Coca-Cola (KO) and Procter & Gamble (PG), each to Sell, citing multiple headwinds faced by the staples sector and the companies, including negative macroeconomic trends as well as company-specific factors.

BEVERAGE MAKERS: Goldman Sachs analyst Judy Hong downgraded Coca-Cola to Sell form Hold. According to the analyst, the soda maker probably won't enjoy "a break-out" 2017. Hobbled by "recent structural changes," foreign exchange headwinds and its high leverage to slow growth products, Coca-Cola's organic sales growth will probably come in below that of the global non-alcoholic beverage category, wrote Hong, who trimmed her price target on the stock to $39 from $41. On a somewhat positive note, Hong upgraded Dr. Pepper Snapple (DPS) to Neutral from Sell. As rising interest rates strengthen the dollar and U.S. corporate tax rates drop, U.S.-focused companies like Dr. Pepper Snapple "could see relative strength" this year, Hong wrote. Moreover, the stock's valuation has become more favorable and "continued strength" in its Allied Brands offering could increase its sales volumes by one percentage point this year, the analyst stated. Hong raised her price target on the shares to $93 from $86.

OTHER STAPLES: After recently dropping back to its long-term average valuation, the staples sector is probably set to drop further, predicted Hong. Among the headwinds faced by the sector's "mega" multinationals are higher interest rates, foreign exchange pressures, and comparably little benefit from U.S. corporate tax cuts, she stated. Meanwhile, the group's fundamentals also "remain challenged," she believes. Calling Procter and Gamble's (PG) valuation "stretched," Hong downgraded the stock to Sell from Neutral in conjunction with her Staples note. She added that "top-line turnaround expectations" for the company are overly optimistic, given the fragmentation of the sector. Within the space, the analyst is more upbeat on Pinnacle Foods (PF), which she calls a potential takeover target, and Kraft Heinz (KHC), as she believes that it can make acquisitions that will deliver synergies. The analyst maintained a Buy rating on Pinnacle Foods and kept Kraft Heinz on the firm's Conviction List.

PRICE ACTION: In morning trading, Coca-Cola fell 1% to $41.33, Dr. Pepper Snapple was flat at $91, Procter & Gamble slipped about 1% to $84.33, Pinnacle Foods added 0.3% to $53.45, and Kraft Heinz lost 0.5% to $85.89 per share.