Coca-Cola Amatil Ltd shares slide 6% on broker downgrade

Unfortunately for its shareholders, the Coca-Cola Amatil Ltd (ASX: CCL) share price has fallen sharply for a second day in a row.

With its shares down 6% to $8.37 in early trade, the beverage company’s shares have now tumbled 9% this week.

Why are its shares down?

As we mentioned yesterday, Coca-Cola Amatil has been dumped as a supplier by Domino’s Pizza Enterprises Ltd. (ASX: DMP) in favour of rival Pepsi-Schweppes.

According to a note out of Deutsche Bank, the loss of the Domino’s tender could lead to a 3% drop in drink volumes

As well as this, Coca-Cola Amatil has recently launched its Coca-Cola No Sugar product in response to changing consumer preferences.

But retail giant and major customer Woolworths Limited (ASX: WOW) has struck a big blow to its plans by reportedly refusing to stock the product.

What now?

These developments have led investment bank Morgan Stanley to downgrade its shares to an underweight rating and slash its price target to just $8.00.

According to the note, its analysts don’t believe the loss of the Domino’s contract is unmanageable, but they are concerned that other smaller quick service restaurant operators may follow suit and switch to Pepsi-Schweppes.

Should you buy the dip?

Whilst I do like the company and believe its distribution network gives it an edge over the competition, these recent developments are a surprise and big a concern.

If the share price were to drop to the $8.00 mark that Morgan Stanley has earmarked, I would consider picking up shares. But for now I think it may be safer to sit on the sidelines.

Which is disappointing because Coca-Cola Amatil is a great dividend payer. So in the meantime an investment in this dividend share might be a better idea.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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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