4 top reasons to consider Coca-Cola Amatil Ltd shares

Credit: Bill Dan

A number of stocks have enjoyed a decent bounce in the past month which isn’t surprising considering the significant move down experienced at the start of the calendar year.

The question now is whether the bounce will turn out to be a short-lived reprieve – particularly for the iron ore miners – or the beginning of a new bull market.

The share price of Coca-Cola Amatil Ltd (ASX: CCL) has bounced 11% higher in the past month. However the leading carbonated beverage bottler’s shares are still down over 16% in the past year.

The performance over the past five years is even more dire with the shares down 25%; in comparison the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is up 6% over the past five years.

Has Coca-Cola’s underperformance created a buying opportunity for long-term investors? Here are four reasons why it may have.

  1. Earnings stabilised and base established – After recording a significant decline in earnings in 2014, Coca-Cola Amatil’s business has stabilised in 2015 to the joy of shareholders. With the group now targeting mid-single digit earnings per share growth, the company looks to be on a much firmer footing for the future.
  2. Cost savings – Management has implemented a strategic plan to bring about major cost savings for the group. According to a recent presentation this plan is ahead of schedule with $100 million in savings being targeted.
  3. Impressive returns on capital employed (ROCE) – Despite earnings not being as strong as the market may like, Coca-Cola Amatil remains an above average business and achieves above average ROCE. In 2015 the group successfully expanded ROCE by 0.1% to 18.6%.
  4. Attractive dividend yield – Coca-Cola Amatil pays out around 80% of its earnings and in 2015 (its financial year operates on a calendar year basis) dividends totalling 43.5 cents per share were paid. With the share price currently trading at $8.87, this implies a partially franked trailing yield of 4.9%.

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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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