Market volatility has been widespread this year amid rising consumer prices and consecutive interest rate hikes by the Fed. The CBOE Volatility Index has gained 40.8% year-to-date. However, demand for beverages remains robust. Moreover, with rising health awareness, organic beverages are becoming more popular.
The beverage segment’s revenue is projected to reach $208.10 billion in 2022. Furthermore, according to Fortune Business Insights, the global functional food and beverage market size is expected to grow at a CAGR of 9.5% until 2028. The industry is gaining traction due to the steadily growing presence of startups specializing in nutrient-enriched drinks.
Given the backdrop, investors might consider adding fundamentally strong beverage stocks The Coca-Cola Company (KO) and PepsiCo, Inc. (PEP) to their portfolios.
The Coca-Cola Company (KO)
KO, a beverage company, manufactures, markets, and sells various non-alcoholic beverages worldwide. The company provides sparkling soft drinks, flavored and enhanced water, sports drinks, juice, dairy, plant-based beverages, tea and coffee, and energy drinks.
On September 29, 2022, KO and Molson Coors Beverage Company expanded their exclusive agreement to develop and commercialize Topo Chico Spirited, a line of spirit-based, ready-to-drink cocktails inspired by the taste of some of America’s most loved tequila and vodka-based beverages. This is expected to be strategically beneficial for KO.
KO has paid dividends for 59 consecutive years. Its dividend payouts have increased at a 3.6% CAGR over the past five years. Its current dividend yield is 2.9%, and its four-year average yield is 3.08%.
KO’s net operating revenue came in at $11.06 billion for the third quarter that ended September 30, 2022, up 10.2% year-over-year. Its gross profit increased 7.1% year-over-year to $6.50 billion. Also, its EPS increased 14% year-over-year to $0.65.
KO’s revenue is estimated to increase 10.5% year-over-year to $42.7 billion in 2022. Its EPS is estimated to grow 6.9% year-over-year to $2.48 in 2022. It has surpassed EPS estimates in all four trailing quarters. Over the past year, the stock has gained 7.1% to close the last trading session at $60.63.
KO’s overall B rating equates to a Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Sentiment, Stability, and Quality. Within the A-rated Beverages industry, it is ranked #19 out of 34 stocks. Click here to see the additional POWR Ratings for Momentum, Growth, and Value for KO.
PepsiCo, Inc. (PEP)
PEP manufactures, markets, distributes, and sells beverages and convenient foods worldwide. It operates through seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, South Asia; Asia Pacific, Australia, and New Zealand; and China Region.
On October 12, 2022, Chairman and CEO Ramon Laguarta said, “We are encouraged by the progress we are making on our strategic agenda, and remain committed to investing in our people, brands, supply chain, and go-to-market systems and winning in the marketplace.”
PEP has paid dividends for 49 consecutive years. Its dividend payouts have increased at a 7.4% CAGR over the past five years. Its current dividend yield is 2.60%, and its four-year average yield is 2.80%.
PEP’s net revenue came in at $21.97 billion for the third quarter that ended September 3, 2022, up 8.8% year-over-year. Its gross profit increased 8% year-over-year to $11.66 billion. Also, its operating profit came in at $3.53 billion, up 6.1% year-over-year.
Analysts expect PEP’s revenue to increase 7.1% year-over-year to $85.11 billion in the current year. Its EPS is estimated to grow 8.1% year-over-year to $6.77 in 2022. It has surpassed EPS estimates in all four trailing quarters. Over the past year, the stock has gained 8.2% to close the last trading session at $177.19.
PEP’s overall B rating indicates a Buy in our proprietary rating system. PEP has an A grade for Quality and a B for Growth, Stability, and Sentiment.
It is ranked #9 in the same industry. Click here for the additional POWR Ratings for Value and Momentum for PEP.
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KO shares were trading at $60.47 per share on Wednesday afternoon, down $0.16 (-0.26%). Year-to-date, KO has gained 4.41%, versus a -15.74% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
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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