In this piece, I evaluated two beverage stocks, Primo Water Corporation (PRMW) and The Coca-Cola Company (KO), to determine the better investment. I find PRMW a better pick for the reasons explained throughout this article.
The beverage industry is expanding as a result of stable demand, healthier options, innovative flavors, sustainability and the popularity of functional beverages such as energy drinks and plant-based alternatives.
According to Statista, beverage revenue is expected to increase at a CAGR of 20.5% to reach $524.20 billion by 2028. This growth can be attributed to various factors, such as the rising demand for healthier and functional beverages, increasing disposable income, and changing consumer preferences towards premium and innovative drinks.
In addition, the functional beverages market is expected to grow at a 5.9% CAGR to $200.08 billion by 2030. Functional beverages containing raw fruits, vitamins, herbs, and artificial additives are gaining popularity worldwide due to their physical and mental health benefits, fueled by a growing athlete community, sports enthusiasts, and global fitness trends.
PRMW gained 9.8% over the past three months compared to KO’s 3.7% gain. PRMW shares have gained 20.1% over the past nine months compared to KO’s 0.75% gain.
Here are the reasons I think PRMW could perform better in the near term:
Recent Developments
On January 2, 2023, PRMW completed the all-cash sale of Primo Water's foreign businesses for $575 million, as previously stated. The sale omitted the Aimia Foods, United Kingdom, Portugal, and Israel businesses, which will be sold in 2024. The revenues from the transaction will be utilized to pay down debt and invest in future growth prospects.
Recent Financial Results
During the fourth quarter, which ended December 31, 2023, PRMW’s net revenue grew 8.3% year-over-year to $438.70 million. The company’s adjusted EBITDA rose 7.1% from a year-ago quarter to $94.90 million. Also, its adjusted net income and EPS came in at $18.60 million and $0.12.
On the contrary, KO’s net operating revenues for the fourth quarter ended December 31, 2023, increased 7.2% year-over-year to $10.85 billion. Its gross profit for the same quarter increased 10.7% year-over-year to $6.22 billion. However, its net income decreased 2.9% year-over-year to $1.97 billion. Its EPS came in at $0.46, representing a decrease of 2.1% over the prior-year quarter.
Expected Financial Performance
Analysts expect PRMW’s revenue for fiscal 2024 to increase 5.3% year-over-year to $1.87 billion. Its revenue for fiscal 2025 is expected to increase 5.9% year-over-year to $1.98 billion.
For fiscal 2024, KO’s EPS and revenue are expected to increase 4.6% and marginally year-over-year to $2.81 and $45.81 billion, respectively. Its EPS and revenue for fiscal 2025 are expected to increase 7% and 5.3% year-over-year to $3.01 and $48.22 billion, respectively.
Profitability
PRMW’s trailing-12-month gross profit margin of 64.17% is higher than KO’s 59.5%. In addition, PRMW’s trailing-12-month asset turnover ratio of 0.49x is higher than KO’s 0.48x.
Thus, PRMW is more profitable.
Valuation
In terms of trailing-12-month Price/Book, KO is currently trading at 10.08x, which is significantly higher than PRMW’s 1.77x. KO’s trailing-12-month Price/Sales of 5.74x is 296.5% higher than PRMW’s 1.44x.
Thus, PRMW is relatively more affordable.
POWR Ratings
PRMW has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. On the other hand, KO has an overall rating of C, translating to a Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. PRMW has a B grade for Growth, consistent with its stable performance in the last reported quarter. On the other hand, KO has a C grade, in sync with its mixed financial performance.
Of the 34 stocks in the B-rated Beverages industry, PRMW is ranked #5, while KO is ranked #16 in the same industry.
Beyond what we’ve stated above, we have also rated both stocks for Momentum, Quality, Sentiment, Value and Stability. Click here to view PRMW’s ratings. Get all the ratings of KO here.
The Winner
The beverage industry is expected to thrive in the coming years amid innovations and expanding options. Industry players such as PRMW and KO are well-positioned to benefit from these industry tailwinds.
However, PRMW’s higher profitability and affordability makes it the better buy here.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Beverages industry here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
PRMW shares were trading at $16.22 per share on Tuesday afternoon, up $0.26 (+1.63%). Year-to-date, PRMW has gained 7.77%, versus a 6.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
Coca-Cola Company (KO) vs. Primo Water (PRMW) - Which Beverage Stock Has More Profit Potential? StockNews.com
