In morning trade the Coca-Cola Amatil Ltd (ASX: CCL) share price has come under pressure and dropped into the red.
At the time of writing the beverage company's shares are down over 3% to $10.13.
Why is the Coca-Cola Amatil share price tumbling lower today?
Investors have been hitting the sell button this morning after Coca-Cola Amatil was the subject of a bearish broker note out of Goldman Sachs.
According to the note, Goldman has downgraded the beverage company's shares to a sell rating with an $8.50 price target.
Based on its last close price, this price target implies potential downside of almost 19% over the next 12 months excluding dividends.
Why is Goldman Sachs bearish on Coca Cola Amatil?
Following the completion of the sale of Coca-Cola Amatil's SPC portfolio, which puts an end to the ongoing losses from this business and allows it to focus on its core operations, the broker decided to take a closer look at the company's outlook.
Whilst the broker believes that many of the company's operations can grow over the medium term, it is less convinced with its key Australian operations.
Goldman believes that the days of cost reductions driving earnings growth could be at an end and that revenue growth is now required.
It said: "CCL's Australian operations have benefited in recent years as cost reductions mitigated earnings declines during weak revenue growth periods. The business is now increasingly reliant on improving sales trends to drive earnings, in our view. While there are some positive examples of sales momentum for CCL through "Beverages for Life" strategy, we remain cautious on the near-term growth potential."
In addition to this, the broker believes that the company's valuation has become stretched after a solid share price run since February.
"Post the FY19 results in February 2019, CC's share price is up ~24% without any major catalyst driving the price, except the sale of SPC which eliminates those ongoing losses. As illustrated in Exhibit 7, CCL remains one of the costliest Coke bottlers on an EV/EBITDA basis relative to its estimated 3 year CAGR."
This year Goldman Sachs expects the company's earnings per share to slide to 53 cents before rebounding to 55 cents next year and then 57 cents the following year. Which means its shares were changing hands at 20x full year earnings prior to today.
Elsewhere in the consumer sector, Goldman is neutral on Woolworths Group Ltd (ASX: WOW) with a $29.00 price target and has a buy rating and $15.70 price target on A2 Milk Company Ltd (ASX: A2M) shares.
