Should you buy Coca-Cola Amatil?

Coca-Cola Amatil (ASX.CCL) is trading at 52-week lows today as investors worry about falling earnings potential in its Australian market. Aggressive competitor discounting and weak consumer sentiment resulted in management reporting a profit downgrade at May’s Annual General Meeting. This has been reflected in the recent share price downturn, but long-term investors may see this as an opportunity.

Coca-Cola remains one of the world’s most powerful brands and is popular the world over. The parent company, The Coca-Cola Company (NYSE: KO), is one of the all-time great success stories. Its Australia-based marketing, distribution and drinks-bottling arm, Coca-Cola Amatil, remains in a strong position to leverage the benefits of its parent company’s strengths.

Between 2001 and 2012, Coca-Cola Amatil created a total shareholder return of 373% versus the S&P/ASX 100 Index’s (Index: ^XTO) of 145%. Over the same period earnings-per-share (EPS) have grown 10.2% at a compounded annual growth rate (CAGR). Those are impressive statistics. However, flat year-on-year forecast earnings for 2013, before interest and tax, are what have seen the share price fall. If the company can continue to outperform on a long-term basis, though, recent share price dips may represent a buying opportunity for Foolish investors. The company continues to lead the way in brand, product and packaging innovation, and continues to develop key growth markets.

One such market is Indonesia, one of the world’s most populous countries. With a rapidly growing economy to match, the Indonesian market represents an opportunity for the kind of growth to get investors excited. 2012 saw earnings before interest and tax increase 16.8% for Indonesia and Papua New Guinea. With the growth outlook remaining favourable for these regions, Coca-Cola Amatil has continued to increase capital expenditure,  and develop beverage production capacity and capability for the regions. Increased investment should contribute to continuing strong results.

Management also aims to find cost savings of $30-40 million over the next few years, primarily by taking advantage of new manufacturing and technology platforms that have been introduced across the business in the past three years. The business is not just about bottling Coca-Cola though. It’s also planning to re-enter the Australian premium beer market in December 2013, and continues to bottle and distribute household brands such as Fanta, Sprite, Powerade and Pump. All in all this business is well worth a look.

Foolish takeaway

Foolish investors know that great businesses with competitive advantages make for excellent long-term investments. At today’s price of just over $12, Coca-Cola Amatil ticks all the boxes, and with the shares providing a dividend yield of around 4.5%, it looks a solid opportunity.

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

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