Broker sentiment towards Coca-Cola Amatil Ltd (ASX: CCL) has improved following its big sell-off that shaved off more than $1 billion from the value of the beverage group.
At least two brokers have upgraded the stock in the wake of CCL’s share price drop after management warned last Friday that FY19 would be another challenging year.
This was essentially a profit downgrade and triggered a near 15% collapse in the Coca-Cola Amatil share price on that day.
But the stock has managed to claw back some of the initial loss and the fact that the stock has only eased 0.5% today when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is down 1% shows that the stock may have bottomed – at least for now.
Deutsche Bank is one of the brokers that has upgraded the stock to “hold” from “sell” with a target price of $8 a share.
“The Investor Day highlighted some positives – innovation is finally being delivered, leadership of the Australian business is strong, investments are being made to reinvigorate Amatil’s sales force competitive advantage and the Group is looking to bring learnings from the highly successful NZ operation to the Australian business,” said Deutsche Bank.
“Category headwinds are not going away and we believe Indonesia will remain tough for the foreseeable future but there are signs of volume stabilisation and the earnings base has become lower.”
Ord Minnett also sees value in the stock following the big de-rating in its share price and has upgraded Coca-Cola Amatil to “hold” from “lighten” even as it cut its price target to $8.50 from $8.75 a share.
“We are more positive on Australian beverages given the volume growth now occurring and sound changes made by new managing director Peter West providing confidence that execution missteps can be avoided,” said the broker.
“Indonesia remains disappointing, however, due to industry challenges and C-C Amatil is refining its strategy.”
The broker believes that the company’s superior network and distribution reach, notwithstanding the loss of the Domino’s Pizza Enterprises Ltd. (ASX: DMP) contract, gives Coca-Cola Amatil an important edge.
While the stock may have found a low, I can’t see a near-term catalyst that would help the stock outperform the market over the next few months.
From that perspective, I think there are better value stocks with more promising near-term re-rating triggers that make better investment options.
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Motley Fool contributor Brendon Lau owns shares of Boral Limited and Nufarm Limited. The Motley Fool Australia has recommended Coca-Cola Amatil Limited and Domino's Pizza Enterprises Limited. 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 Scott Phillips.