Is it time to buy beaten-down Coca-Cola Amatil Ltd?

Has the market punished the share price too much?

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Although the S&P ASX All Ordinaries Index (ASX: ^XAO) is hitting new 52-week highs, there are always going to be some big stocks that had a rough half year and are being held back. What has to improve for them to start upwards again? While they’re at low prices, could now be an opportunity to take advantage of short-term weakness?

The regional bottler of the world’s most famous soft drink, Coca-Cola Amatil Ltd (ASX: CCL), had a quick fall off in share price this month, dropping from about $11.40 to $9, when it announced that group EBIT before significant items were 15% down for the first half.

Heavy write-downs in 2013

Its 2013 result was a much lower statutory net profit than previous years, though shares began to sell down before then from about $15. The majority of the $422.9 million in significant items was a write-down of assets in SPC Ardmona, the vegetable and fruit cannery. The items were mostly non-cash figures, so have little impact on operations.

Re-entry into alcoholic beverages market

Difficult trading conditions in Australian grocery channels led to a decline in beverage earnings. Yet from December the company re-entered the premium beer and cider market and is expanding its alcoholic beverage platform to improve earnings and margins.

The company will be also conducting a business review, which is shorthand for “cost cutting”. If it can realise savings to offset market weakness, then together with extra revenues from the alcoholic drink business, it may put a floor under the share price.

Share price and earnings growth

The share price is $9.36 and the PE is 15, which is at the bottom of its historic PE range. The dividend yield is 5.4%. The company usually achieves a median 5%-6% annual earnings growth, so investors should look towards the steady annual dividend income, while waiting for share price appreciation.

Foolish takeaway

The company operates in several different countries, so one other effect on earnings is currency fluctuations, such as the weak Indonesian rupiah.

I would wait to see how the initial sales figures for alcoholic beverages are in the half-year FY2014 report to gauge the progress.

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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