Despite the macro challenges, beverage demand remained steady. Moreover, with increased health consciousness, organic beverages are becoming more popular.
Although the stock market might remain under pressure in the near term, fundamentally sound stocks Embotelladora Andina S.A. (AKO.B) and Primo Water Corporation (PRMW) could be worth buying now. These stocks are trading at a discount.
The global beverage market is valued at $1.80 trillion as of 2022, while the United States non-alcoholic beverage industry is valued at about $760 billion.
The global Beverage market is expected to expand at a CAGR of 13.8% until 2028. The industry is gaining popularity as the number of startups specializing in nutrient-rich drinks grows.
In addition, soft drink sales represent one of the fastest-growing categories of the beverage market. According to a study, 50% of American adults and 60.7% of American children consume soda or sugary beverages every day.
Take a detailed look at the stocks mentioned above:
Embotelladora Andina S.A. (AKO.B)
AKO.B, headquartered in Santiago, Chile, produces, markets, and distributes Coca-Cola Company (KO) trademark beverages in Chile, Brazil, Argentina, and Paraguay. The company offers fruit juices, sports drinks, mineral and purified water, and PET bottles.
AKO.B’s trailing-12-month EBITDA margin of 16.92% is 58.1% higher than the 10.98% industry average, while its trailing-12-month gross profit margin of 38.70% is 23% higher than the industry average of 31.46%.
AKO.B’s forward EV/Sales of 0.92x is 43.5% lower than the industry average of 1.62x. Its forward Price/Sales of 0.71x is 37.3% lower than the industry average of 1.13x.
AKO.B’s net sales increased 21.2% year-over-year to CLP789.93 billion ($979.52 million) in the fourth quarter ended December 31, 2022. Its operating income grew 14.8% from the year-ago value to CLP115.04 billion ($142.65 million), while its adjusted EBITDA improved 16.1% year-over-year to CLP148.26 billion ($183.84 million).
The consensus revenue estimate of $3.34 billion for the same year reflects a 9.7% increase from the prior year. Its EPS to grow 62.1% year-over-year to $1.41 in 2023. The stock has gained 43% over the past six months to close its last trading session at $14.96.
AKO.B’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
AKO.B is rated a B grade for Value, Sentiment, Stability, and Quality. Within the A-rated Beverages industry, it is ranked #3 of 36 stocks. To see additional POWR Ratings for Momentum and Growth for AKO.B, click here.
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 trailing-12-month EBITDA margin of 17.35% is 58.1% higher than the 10.98% industry average, while its trailing-12-month gross profit margin of 58.39% is 85.6% higher than the industry average of 31.46%.
PRMW’s forward Price/Cash Flow of 6.23x is 52.2% lower than the industry average of 13.02x. Its forward Price/Sales of 0.99x is 12% lower than the industry average of 1.13x.
PRMW has paid dividends for nine consecutive years. Over the last three years, PRMW’s dividend payouts have grown at 6.5% CAGR. While PRMW’s four-year average dividend yield is 1.73%, its current dividend translates to a 2.22% yield.
For the fourth quarter that ended on December 31, 2022, PRMW’s net revenue increased 2.9% from the year-ago value to $533 million. Its gross profit increased 9% year-over-year to $313.30 million. The company’s adjusted net income grew 42.9% from the year-ago value to $25.30 million, while its non-GAAP EPS stood at $0.16, up 45.5% year-over-year.
Street expects PRMW’s revenue to increase 6.7% year-over-year to $2.47 billion in 2024. Its EPS is estimated to increase 31.5% year-over-year to $0.96 in 2024. Over the past six months, the stock has gained 14.2% to close the last trading session at $14.44.
It’s no surprise that PRMW has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has a B grade for Growth, Stability, and Quality. It is ranked #5 in the same industry.
Beyond what is stated above, we’ve also rated PRMW for Value, Sentiment, and Momentum. Get all PRMW ratings here.
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AKO.B shares were trading at $15.23 per share on Monday afternoon, up $0.27 (+1.80%). Year-to-date, AKO.B has gained 6.21%, versus a 4.22% 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. More...
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