The beverage industry’s ability to meet evolving consumer preferences amid growing awareness regarding the importance of nutrition and overall well-being should drive growth. Moreover, the inherent inelastic demand for beverages should keep the industry resilient amid uncertain economic conditions.
Given this backdrop, quality beverage stocks, PepsiCo, Inc. (PEP), Primo Water Corporation (PRMW), and Coca-Cola FEMSA, S.A.B. de C.V. (KOF), could be lucrative investment options now.
The beverage industry is anticipated to exhibit immense resilience fueled by consistent product demand despite price hikes. The global beverage market is projected to expand at a CAGR of 4.7%, reaching $4.39 trillion by 2028.
Taste continues to be a predominant factor driving consumption, while health-focused consumers strongly gravitate toward healthier drink options. The non-alcoholic beverages sector is positioned to receive a boost in demand.
As per Statista, revenue in the non-alcoholic drinks market is expected to be $1.45 trillion in 2023 and expand at a 4.7% CAGR by 2027. As of 2023, soft drinks reign as the largest section of this market, boasting a volume of $0.85 trillion.
Simultaneously, heightened health concerns about animal-based diets and an escalating demand for vegan options fuel the plant-based beverage market. The plant-based beverages market is projected to reach $22.45 billion by 2026, growing at a CAGR of 6.7%.
In light of these encouraging trends, let's look at the fundamentals of the three Buy-rated Beverages stocks, beginning with the third choice.
Stock #3: PepsiCo, Inc. (PEP)
PEP manufactures, markets, distributes, and sells beverages and convenient foods worldwide. It has seven operating segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, and South Asia; Asia Pacific, Australia, and New Zealand; and China Region.
On September 29, PEP paid its shareholders a quarterly dividend of $1.265 per share of its common stock.
PEP pays a dividend of $5.06 per share annually, translating to a 3.16% yield on the current price. Its four-year average dividend yield is 2.72%. The company’s dividend payouts have grown at CAGRs of 6.9% over both the past three and five years. The company has paid dividends for 50 consecutive years.
PEP’s trailing-12-month cash from operations of $12.14 billion is significantly higher than the industry average of $614.61 million, while its trailing-12-month EBIT margin of 14.59% is 82.4% higher than the industry average of 8%.
Over the past three and five years, its net income grew at CAGRs of 5.6% and 10.9%, respectively, while its total assets grew at 2.8% and 6.3% CAGRs over the same periods.
PEP’s net revenue increased 6.7% year-over-year to $23.45 billion in the fiscal third quarter that ended September 9, 2023. Its non-GAAP gross profit grew 8.8% from the year-ago value to $12.77 billion, while its non-GAAP operating profit increased 12.1% year-over-year to $4.03 billion.
Also, the company’s non-GAAP attributable net income came in at $3.11 billion and $2.25 per share, up 13.7% and 14.2% year-over-year, respectively. As of September 9, 2023, its total current assets came at $28.65 billion, compared to $21.54 billion as of December 31, 2022.
Analysts expect PEP’s revenue and EPS for the fiscal fourth quarter ending December 2023 to increase 1.6% and 2.9% year-over-year to $28.45 billion and $1.72, respectively. Moreover, the company surpassed the EPS and revenue estimates in each of the trailing four quarters, which is impressive.
The stock has lost 6.6% over the past year to close the last trading session at $160.08.
PEP’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
PEP is rated an A for Quality and a B for Growth. Within the B-rated 35-stock Beverages industry, it is ranked #12.
Beyond what is stated above, we’ve also rated PEP for Value, Momentum, Stability, and Sentiment. Get all PEP ratings here.
Stock #2: Primo Water Corporation (PRMW)
PRMW provides water directly to consumers and water filtration services in North America and Europe. It serves bottled water, purified bottled water, premium spring, sparkling and flavored water, mineral water, filtration equipment, coffee, water dispensers, and self-service refill drinking water.
PRMW’s board of directors authorized a new $50 million share repurchase program, which replaced the previously authorized share repurchase program that expired on August 14, 2023.
On September 7, the company paid its shareowners a quarterly dividend of $0.08 per share on common shares. PRMW pays a dividend of $0.32 per share annually, translating to a 2.41% yield on the current price. Its four-year average dividend yield is 1.78%.
The company’s dividend payouts have grown at CAGRs of 8.9% and 5.3% over the past three and five years, respectively. The company has paid dividends for nine consecutive years.
PRMW’s trailing-12-month EBITDA margin of 17.79% is 55.2% higher than the 11.47% industry average, while its trailing-12-month CAPEX/Sales of 9.40% is 197.7% higher than the industry average of 3.16%.
Over the past three and five years, its EBIT grew at CAGRs of 19% and 13.6%, respectively, while its normalized net income grew at 155.5% and 42.1% CAGRs over the same periods.
For the fiscal second quarter that ended on July 1, 2023, PRMW’s net revenue increased 3.8% from the year-ago value to $593.30 million. Its adjusted EBITDA increased 12.6% year-over-year to $121.60 million. The company’s adjusted net income grew 16.5% from the year-ago value to $38.80 million, while its adjusted net income per share stood at $0.24, up 14.3%.
Street expects PRMW’s revenue and EPS to increase 7% and 22.7% year-over-year to $625.73 million and $0.27, respectively, for the fiscal third quarter ending September 2023. Moreover, the company surpassed the revenue estimates in three of the trailing four quarters.
The stock has lost 6.3% over the past year to close the last trading session at $13.26.
It’s no surprise that PRMW has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
It has an A grade for Growth and a B for Sentiment and Quality. It is ranked #6 in the same industry.
To see PRMW’s additional ratings for Value, Momentum, and Stability, click here.
Stock #1: Coca-Cola FEMSA, S.A.B. de C.V. (KOF)
Based in Mexico City, Mexico, KOF is a franchise bottler that produces, markets and distributes Coca-Cola trademark beverages. Its portfolio encompasses colas, flavored sparkling drinks, and more. The company serves customers through retail, wholesale, and home delivery, covering supermarkets, retailers, and points-of-sale outlets.
KOF pays a $3.25 per share dividend annually, translating to a 4.45% yield on the current share price. The company’s dividend payouts have grown at a CAGR of 16.1% over the past three years and 11.5% over the past five years. It paid dividends for 19 consecutive years.
KOF’s trailing-12-month gross profit margin of 43.90% is 33.2% higher than the 32.96% industry average. Its trailing-12-month net income margin of 8.59% is 97.9% higher than the industry average of 4.34%.
Over the past three and five years, its revenue grew at CAGRs of 7.8% and 6%, respectively, while its normalized net income grew at 10.7% and 12% CAGRs over the same periods.
For the fiscal second quarter that ended June 30, 2023, KOF’s total revenues increased 7.2% year-over-year to MXN 61.43 billion ($3.36 billion). Its gross profit rose 7.9% from the year-ago quarter to MXN 27.27 billion ($1.49 billion).
Also, the company’s net income and earnings per share grew 6.5% and 3.6% from the prior year’s period to MXN 4.93 billion ($269.17 million) and MXN 0.29, respectively.
For the fiscal third quarter ending September 2023, KOF’s revenue and EPS are expected to increase 24.5% and 26.9% year-over-year to $3.56 billion and $1.32, respectively. Moreover, the company topped the consensus revenue and EPS estimates in all trailing four quarters.
The stock has gained 19.4% over the past year to close the last trading session at $71.45.
KOF’s positive outlook is apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
KOF has a B grade for Value, Stability, Sentiment, and Quality. It has ranked #3 within the Beverages industry.
In addition to the POWR Ratings I’ve just highlighted, you can see KOF’s ratings for Growth and Momentum here.
What To Do Next?
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PEP shares were trading at $162.86 per share on Tuesday morning, up $2.78 (+1.74%). Year-to-date, PEP has declined -7.97%, versus a 12.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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