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Is Coca-Cola Amatil a buy?

Beverage bottler and marketer Coca-Cola Amatil’s (ASX: CCL) share price is once again at levels that begin to make the stock look interesting. The recent earnings downgrade by management, which coincided with the May Annual General Meeting and was reported by The Motley Fool here, has caused investors to question the future growth potential of the company.

Coca-Cola Amatil has grown earnings-per-share (EPS) at a compound annual growth rate (CAGR) of 10.2% for the last decade. Over the same period, the company has been able to grow dividends per share at a 14.1% CAGR. This is impressive and appealing!

While past history is far from a perfect determinant of the future, Coca-Cola Amatil has managed to create a significant amount of shareholder value above and beyond the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) over a long time period. This shows that the company and its management have certain attributes which could help provide continued outperformance in the future.

CCL

Source: Google Finance

 

Future potential

Management believes it can wring out $30 million to $40 million of efficiency gains from the business over the next three years. The company is also positioning itself to be a major force in the domestic alcoholic beverage market, with a focus on beer and dark spirits. Thankfully perhaps, management is leaving Treasury Wine Estates (ASX: TWE) to the often troubled wine industry.

Foolish takeaway

Most investors would agree that Coca-Cola Amatil is a solid company (8 times interest coverage) with a reasonable growth profile. The stock is currently yielding 4.5% and assuming the dividend rises slightly over the next 12 months, then the forecast yield rises towards an attractive 5%.

The question mark is over its growth rate. With an adjusted trailing price-to-earnings ratio of 16.9 times, today’s share price is a full price to pay for a company that could be destined to grow its future earnings at less than 10% per annum.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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