Could Warren Buffett love Coca-Cola Amatil Ltd?

The business model might not be as good but the asking price for Coca-Cola Amatil Ltd (ASX:CCL) could tempt the famous investor.

a woman

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Followers of legendary investor Warren Buffett would be very hard pressed to not be well aware of the deep love Buffett has not only for drinking a cherry-flavoured Coke, but also for his deep admiration for The Coca-Cola Company.

Don't be mistaken, Coca-Cola Amatil Ltd (ASX: CCL) is not in the same league as The Coca-Cola Company – in my opinion or more than likely in Buffett's either – but the story doesn't end there…

The Coca-Cola Company is a business model that is arguably second to none. At the heart of the business is the intellectual property behind the closely guarded, secret formula for the cola syrup which the company produces and then licenses and sells to bottling plants around the globe such as those operated by Coca-Cola Amatil.

So, in a nut shell, the business model of syrup owner and supplier for The Coca-Cola Company is miles ahead of the business model of bottler Coca-Cola Amatil.

As Buffett followers will also know, he aims to buy high quality businesses that possess wide moats.

While world class companies at a fair price may certainly be his preference, that doesn't mean Buffett won't also consider buying shares in decent companies when they're available at a very attractive price.

Coca-Cola Amatil arguably could meet this criteria.

While its business model isn't as appealing as its that of its parent, it is still arguably an above average business which possesses a very powerful (some would say the most powerful) brand name. It enjoys economies of scale in its distribution, marketing and production and some market and pricing power thanks to its brand strength.

And when it comes to pricing, Coca-Cola Amatil certainly looks quite appealing…

The stock is currently trading at $9.18 which is around 5% higher than where it was one year ago, but nearly 25% below where it was trading five years ago.

According to earnings per share (EPS) and dividend forecast data (provided by Thomson Consensus Estimates) Coca-Cola Amatil should produce EPS of 54.1 cents per share (cps) and dividends per share of 43 cps in financial year 2016.

If these forecasts prove accurate, this equates to a price-to-earnings ratio and dividend yield of 17x and 4.7% respectively, which looks pretty compelling all things considered.

Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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