Despite the challenging macroeconomic conditions, the beverage industry is well positioned for solid growth amid increasing disposable income and changing consumer preferences towards ready-to-drink beverages.
Before diving deeper into their fundamentals, let’s discuss why the beverages industry is well-positioned for long-term growth.
According to Statista, the U.S. beverage market is projected to reach a revenue of $64.38 billion in 2023. The industry is anticipated to exhibit an annual growth rate of 15%, resulting in a projected market volume of $112.60 billion by 2027.
Moreover, the industry is expected to experience growth driven by an uptick in promotional and advertising strategies employed by various manufacturers. The global beverages market is expected to reach $4.39 trillion by 2028 at a CAGR of 4.7%.
In addition, the rising number of fitness enthusiasts and growing consumer inclination towards a healthy lifestyle are boosting the functional beverages market, which is expected to grow at a CAGR of 5.9% until 2030.
Considering these conducive trends, let’s take a look at the fundamentals of the two above-mentioned Beverages stocks.
Stock to Buy:
The Coca-Cola Company (KO)
KO manufactures, markets, and sells various non-alcoholic beverages worldwide. The company provides sparkling soft drinks, sparkling flavours; water, sports, coffee, and tea; juice, value-added dairy, and plant-based beverages; and other beverages.
On July 12, 2023, KO and eight bottling partners announced a new $137.7 million venture capital fund managed by Greycroft, focused on sustainability investments. Greycroft Coca-Cola System Sustainability Fund, will prioritize addressing the carbon footprint of the KO system and concentrate on key areas like packaging, heating and cooling, facility decarbonization, distribution, and supply chain improvements.
John Murphy, President and Chief Financial Officer at KO said, “This fund offers an opportunity to pioneer innovative solutions and help scale them quickly within the Coca-Cola system and across the industry. We expect to benefit from getting access to emerging technology and science for sustainability and carbon reduction.”
In terms of the trailing-12-month net income margin, KO’s 23.81% is 473.5% higher than the 4.15% industry average. Likewise, its 31.27% trailing-12-month EBITDA margin is 205.8% higher than the 10.23% industry average. Additionally, its 28.60% trailing-12-month EBIT margin is 262.3% higher than the 7.89% industry average.
KO’s net operating revenues for the second quarter that ended June 30, 2023, rose 5.7% year-over-year to $11.97 billion. Its non-GAAP gross profit increased 6.6% year-over-year to $7.11 billion. The company’s non-GAAP operating income rose 9.1% year-over-year to $3.78 billion.
Also, KO’s non-GAAP net income increased 10.5% year-over-year to $3.39 billion. Its non-GAAP net income per share increased 11.4% from the prior-year quarter to $0.78.
Street expects KO’s EPS and revenue for the quarter ending September 30, 2023, to increase 1.1% and 3.1% year-over-year to $0.70 and $11.44 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock declined 3.1% to close the last trading session at $57.98.
It’s no surprise that KO has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B for Stability and Sentiment. It is ranked #13 out of 35 stocks in the B-rated Beverages industry. In total, we rate KO on eight different levels. Beyond what we stated above, we also have given KO grades for Growth, Value, and Momentum. Get all the KO ratings here.
Stock to Watch:
Constellation Brands, Inc. (STZ)
STZ produces, imports, markets, and sells beer, wine, and spirits in the United States, Canada, Mexico, New Zealand, and Italy. The company provides beer, primarily under the Corona Extra, Corona Premier, Corona Familiar, Modelo Especial, Vicky Chamoy, and Pacifico brands.
In terms of the trailing-12-month EBIT margin, STZ’s 29.89% is 278.6% higher than the 7.89% industry average. Likewise, its 34.05% trailing-12-month EBITDA margin is 232.9% higher than the 10.23% industry average. However, its 0.38x trailing-12-month asset turnover ratio is 58.3% lower than the 0.91x industry average.
STZ’s net sales for the first quarter ended May 31, 2023, increased 6.4% year-over-year to $2.51 billion. Its gross profit rose marginally from the year-ago value to $1.26 billion. However, the company’s segment operating income narrowed 22.8% year-over-year to $49.9 million. Also, its net income for the period declined 186.9% year-over-year to $139.20 million.
For the quarter ended August 31, 2023, STZ’s EPS and revenue are expected to increase 6% and 6.3% year-over-year to $3.36 and $2.82 billion, respectively. Over the past six months, the stock has gained 23.3% to close the last trading session at $260.18.
STZ’s POWR Ratings reflect uncertainty. It has an overall rating of C, which translates to a Neutral in our proprietary rating system.
It has a B grade for Growth and Sentiment and a C for Momentum, Stability and Quality. It is ranked #19 in the same industry. To see STZ’s Value ratings, click here.
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KO shares were trading at $58.36 per share on Thursday morning, down $0.08 (-0.14%). Year-to-date, KO has declined -6.85%, versus a 18.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments. More...
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