Consumers have been eager to explore new products lately, particularly those promoting health and safety. In response, beverage makers are expanding offerings to meet this demand, introducing ranges with lower sugar content and added functionality, capitalizing on pandemic-driven consumption shifts.
To that end, it could be wise to invest in fundamentally strong beverage stocks Coca-Cola FEMSA, S.A.B. de C.V. (KOF), Coca-Cola Consolidated, Inc. (COKE), and Embotelladora Andina S.A. (AKO.B) that exhibit strong profitability and stability and are currently trading at a discount right now. Let’s understand this in detail.
Adapting to ever-changing consumer preferences, the beverage industry remains dynamic, particularly in serving health-conscious consumers. With increasing global diabetes prevalence, people are more aware of the importance of a balanced diet and regular physical activity, driving the industry's evolution.
This growing awareness is leading beverage manufacturers towards innovating products, aligning with consumer demand for reduced or sugar-free options. According to Mordor Intelligence, the beverage market is expected to grow from $3.49 trillion in 2023 to $4.39 trillion by 2028, growing at a CAGR of 4.7%.
The demand for low-alcohol-by-volume beverages has also been surging in the market, particularly among millennials and baby boomers. Sales of these beverages have been on the rise, driven by heightened health consciousness and the availability of an increasingly diverse and tastier product portfolio.
Furthermore, the industry is also benefiting significantly from the growing integration of artificial intelligence and machine learning. These technologies are enabling beverage makers to enhance production output, quality, and reliability, ultimately optimizing factory operations for improved outcomes.
Against this backdrop, investing in stable and profitable beverage stocks KOF, COKE, and AKO.B seems wise, which are currently trading at a discount.
Let’s delve into the fundamentals of the highlighted stocks.
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’s trailing-12-month gross profit margin of 43.90% is 38% higher than the 31.81% industry average. Its trailing-12-month EBITDA margin of 16.93% is 59.5% higher than the industry average of 10.61%. In addition, the stock’s trailing-12-month net income margin of 8.59% is 138.1% higher than the industry average of 3.61%.
In terms of forward non-GAAP P/E, KOF is trading at 15.31x, 18.7% lower than its industry average of 18.83x. Its forward EV/Sales of 1.37x is 18.7% lower than the 1.69x industry average. Moreover, its forward EV/EBITDA of 7.21x compares to the industry average of 11.96x.
For the second quarter that ended June 30, 2023, KOF’s income increased 7.2% year-over-year to Ps 61.43 billion ($3.60 billion). Its operating profit rose 10.6% from the year-ago value to Ps 8.29 billion ($485.53 million).
Also, the company’s net income and EPS grew 10.3% and 3.6% from the prior year’s period to Ps 4.04 billion ($295.47 million) and Ps 0.29, respectively.
For the fiscal year ending December 2023, KOF’s revenue is expected to increase 17.6% year-over-year to $14.48 billion. The company’s EPS for the current year is expected to be $5.22, up 6.2% from the prior year. Moreover, the company topped the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.
Shares of KOF have gained 37.1% over the past year to close the last trading session at $82.17. The stock has a 24-month beta of 0.55, indicating greater stability than the broader market.
KOF’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
KOF has an A grade for Stability and a B for Quality and Value. It has ranked #3 in the B-rated 37-stock Beverages industry.
In addition to the POWR Ratings I’ve just highlighted, you can see KOF’s ratings for Momentum, Growth, and Sentiment here.
Coca-Cola Consolidated, Inc. (COKE)
COKE manufactures, markets, and distributes nonalcoholic drinks. Its diverse range includes sparkling and still beverages, sold directly at various outlets like grocery, mass merchandise, convenience stores, restaurants, schools, amusement parks, and vending machines.
COKE’s trailing-12-month gross profit margin of 38.65% is 21.5% higher than the 31.81% industry average. Moreover, the stock’s trailing-12-month EBITDA margin of 14.24% is 34.2% higher than the industry average of 10.61%. Also, its trailing-12-month net income margin of 7.34% is 103.3% higher than the 3.61% industry average.
In terms of trailing-12-month non-GAAP P/E, COKE is trading at 17.34x, 5.8% lower than its industry average of 18.40x. Furthermore, its trailing-12-month EV/Sales of 1.05x is 40.2% lower than the 1.75x industry average. Also, the stock’s trailing-12-month EV/EBITDA of 7.36x compares to the industry average of 13.37x.
During the second quarter that ended June 30, 2023, COKE’s non-GAAP gross profit grew 19.3% year-over-year to $673.15 million. Its non-GAAP income from operations rose 47.1% from the year-ago value to $235.47 million.
In addition, the company’s non-GAAP net income and non-GAAP net income per share grew 54% year-over-year to $172.83 million and $18.43, respectively.
The stock has gained 50.5% year-to-date, closing the last trading session at $713.16. It has a 24-month beta of 0.80.
COKE’s solid outlook is reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
COKE has an A grade for Quality and a B for Growth, Value, Stability, and Sentiment. It has topped the 37-stock Beverages industry.
Click here to access the additional COKE ratings (Momentum).
Embotelladora Andina S.A. (AKO.B)
Headquartered in Santiago, Chile, AKO.B engages in the production, marketing, and distribution of Coca-Cola trademark beverages. Its diverse portfolio includes fruit juices, flavored beverages, sports drinks, and alcoholic options. Additionally, it distributes energy drinks, ice cream, and frozen products.
AKO.B’s trailing-12-month gross profit margin of 38.62% is 21.4% higher than the 31.81% industry average. Its trailing-12-month EBITDA margin of 15.88% is 49.6% higher than the industry average of 10.61%. Moreover, its trailing-12-month net income margin of 4.37% is 21% higher than the 3.61% industry average.
In terms of forward non-GAAP P/E, AKO.B is trading at 11.88x, 36.9% lower than its industry average of 18.83x. Its forward EV/Sales of 1.03x is 38.7% lower than the 1.69x industry average. Also, the stock’s forward EV/EBITDA of 6.01x compares to the industry average of 11.96x.
For the second quarter that ended June 30, 2023, AKO.B’s consolidated net sales increased 3.8% year-over-year to Ch$ 614.43 billion ($719.50 million). Its gross profit grew 4.1% from the year-ago value to Ch$ 236.62 billion ($277.08 million). Also, its adjusted EBITDA rose 6.3% from the prior year’s quarter to Ch$ 99.77 billion ($116.83 million).
The consensus revenue estimate of $3.38 billion for the fiscal year ending December 2024 indicates a 5.9% year-over-year improvement. Likewise, the consensus EPS estimate of $1.68 for the same period reflects a 25.3% rise year-over-year. Furthermore, AKO.B surpassed the consensus revenue estimates in all four trailing quarters.
Over the past year, the stock has gained 50.6%, closing the last trading session at $16.04. It has a 24-month beta of negative 0.02.
AKO.B’s robust outlook is apparent in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
AKO.B has a B grade for Stability, Quality, and Value. It is ranked #5 out of 37 stocks within the same industry.
Click here to access additional AKO.B ratings for Growth, Sentiment, and Momentum.
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KOF shares were trading at $80.96 per share on Tuesday afternoon, down $1.21 (-1.47%). Year-to-date, KOF has gained 21.35%, versus a 17.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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