Inflation has persistently remained near the multi-decade high level despite the Fed’s multiple interest rate hikes this year. Also, investors expect the economy to witness a recession soon.
However, the inelastic demand for beverages helps their markers survive inflationary and recessionary environments well without majorly impacting their revenues. According to Statista, the revenue in the worldwide Beverages segment is expected to reach $233.90 billion in 2022.
In addition, the demand for non-alcoholic beverages is surging amid rising health awareness. The non-alcoholic beverages market is estimated to reach $1.89 trillion by 2028, growing at a CAGR of 6.2%. The growth can be attributed to changing consumer trends, a rising health-conscious population, and increasing demand for convenience food and beverages.
Given the industry’s ability to survive short-term market fluctuations and deliver solid returns in the long run, one could invest in or hold onto fundamentally strong beverage stocks The Coca-Cola Company (KO), PepsiCo, Inc. (PEP), Ambev S.A. (ABEV), and Constellation Brands, Inc. (STZ).
The Coca-Cola Company (KO)
KO manufactures, markets, and sells various non-alcoholic beverages worldwide. The company provides sparkling soft drinks, flavored water; sports drinks, juice; dairy; plant-based beverages; tea and coffee; and energy drinks. It also offers beverage concentrates, syrups, and fountain syrups, to fountain retailers.
For the fiscal second quarter ended July 1, 2022, KO’s non-GAAP net operating revenues increased 11.6% year-over-year to $11.30 billion. The company’s non-GAAP gross profit rose 7.2% from the prior-year period to $6.67 billion.
Its non-GAAP operating income increased 8% year-over-year to $3.47 billion, while its non-GAAP net income increased 4.4% year-over-year to $3.06 billion. Its non-GAAP EPS came in at $0.70, representing a 2.9% increase from the prior-year quarter.
KO’s EPS and revenue for the quarter ending December 31, 2022, are expected to increase 5% and 3.9% year-over-year to $0.47 and $9.84 billion, respectively. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 5.7% to close the last trading session at $57.57.
KO’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the A-rated Beverages industry, it is ranked #21 out of 33 stocks. The company has a B grade for Stability, Sentiment, and Quality.
Click here to see the additional POWR Ratings of KO for Growth, Value, and Momentum.
PepsiCo, Inc. (PEP)
PEP manufactures, markets, distributes and sells beverages and convenient foods worldwide. The company operates through seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, and South Asia; and Asia Pacific, Australia and New Zealand and China Region.
On August 2, 2022, PEP announced its strategic agreement with premium Romanian spring water brand AQUA Carpatica under which PEP will own a 20 percent equity stake in AQUA Carpatica. Under the agreement, PEP will have the right to distribute the spring water in Romania and Poland with opportunities to expand into other markets, including the United States.
CEO of PepsiCo Europe, Silviu Popovici, said, “We are confident that AQUA Carpatica’s strong brand equity will resonate with our customers and consumers globally.”
PEP’s net revenue for the third quarter ended September 3, 2022, increased 8.8% year-over-year to $21.97 billion. The company’s operating profit increased 6.1% year-over-year to $3.35 billion, while the non-GAAP net income attributable to PEP increased 10% year-over-year to $2.73 billion. Its adjusted EPS increased 10% from the prior-year period to $1.97.
Analysts expect PEP’s EPS and revenue for the quarter ending December 31, 2022, to increase 7.1% and 5.3% year-over-year to $1.64 and $26.59 billion, respectively. The company has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 11% to close the last trading session at $177.68.
PEP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It is ranked #8 in the same industry. It has an A grade for Quality and a B for Growth, Stability, and Sentiment.
We have also given PEP grades for Value and Momentum. Get all PEP ratings here.
Ambev S.A. (ABEV)
Headquartered in Sao Paulo, Brazil, ABEV, through its subsidiaries, produces, distributes, and sells beer, draft beer, carbonated soft drinks, other non-alcoholic beverages, malt, and food products. The company operates through four segments: Brazil, Central America and the Caribbean, Latin America South, and Canada.
For the fiscal second quarter that ended June 30, 2022, ABEV’s net revenue increased 14.5% year-over-year to R$17.99 billion ($3.45 billion). The company’s gross profit increased 11.2% from the prior-year quarter to R$8.61 billion ($1.65 billion).
In addition, its normalized profit increased 4.2% year-over-year to R$3.08 billion ($591.08 million). Its cash flow from operating activities increased 17.5% year-over-year to R$2.20 billion ($422.20 million).
Analysts expect ABEV’s revenue for the quarter ended September 30, 2022, to increase 18.3% year-over-year to $3.89 billion. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 8.4% to close the last trading session at $2.83.
ABEV’s solid prospects are reflected in its POWR Ratings. The company has an overall rating of B, which equates to a Buy. In the same industry, it is ranked #12. In addition, it has a B grade for Sentiment and Quality.
To see the other ratings of ABEV for Growth, Value, Momentum, and Stability, click here.
Constellation Brands, Inc. (STZ)
STZ, together with its subsidiaries, produces, imports, markets, and sells beer, wine, and spirits in the United States, Canada, Mexico, New Zealand, and Italy. It provides beer primarily under the brands — Corona Extra, Corona Premier, Corona Familiar, Corona Light, and Corona Refresca, among others.
On October 13, 2022, STZ published its inaugural ESG Impact Report highlighting established commitments and targets to positively impact the planet and progress toward achieving them. STZ’s President and CEO, Bill Newlands, stated that as a core tenet of its long-term business strategy, the company has bolstered its ESG commitments and is exceptionally proud of its progress.
STZ’s net sales for the second quarter ended August 31, 2022, increased 12% year-over-year to $2.66 billion. The company’s gross profit increased 13% year-over-year to $1.37 billion, while its non-GAAP operating income increased 20.9% to $882.70 million.
In addition, its non-GAAP net income attributable to CBI increased 28% year-over-year to $588.70 million. Also, its EPS came in at $3.17, representing a 33.2% increase from the prior-year quarter.
Analysts expect STZ’s revenue for the quarter ending November 30, 2022, to increase 2.6% to $2.38 billion. Its revenue for the quarter ending May 31, 2022, is expected to increase 17.5% year-over-year to $3.13.
STZ has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 4.7% to close the last trading session at $229.74.
STZ’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. It is ranked #17 in the Beverages industry. The company has a B grade for Growth, Sentiment, and Quality.
Click here to see the additional POWR Ratings of STZ for Value, Momentum, and Stability.
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KO shares were trading at $58.35 per share on Tuesday afternoon, up $0.78 (+1.35%). Year-to-date, KO has gained 0.75%, versus a -18.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...
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