Shifting customer preferences and the rising habit of consuming non-alcoholic beverages should help the beverage sector stay afloat.  Therefore, investors could consider buying fundamentally sound beverage stocks PepsiCo, Inc. (PEP), Anheuser-Busch InBev SA/NV (BUD), and Primo Water Corporation (PRMW) to garner steady returns.

The Consumer Price Index (CPI) measured 6% in February, down from January’s 6.4% and in line with expectations. This marked the eighth consecutive month that the annual rate has declined and the lowest level since September 2021. The Impact of Inflation on Consumer Behavior report predicts a 5.5% increase in food and beverage dollar sales through all channels for the full year.

Beverage companies have put their best foot forward to spice up their product lines. The companies have been continually developing products by blending the best quality of different drinks, blurring the lines between product categories.

With more consumers consuming non-alcoholic beers to move toward healthier drinking alternatives and safer drinking habits, the global non-alcoholic beer market is projected to reach $28.79 billion by 2027, growing at a CAGR of 9.3%. Furthermore, according to Statista, revenue in the beverages segment is projected to reach $91.03 billion this year and is expected to grow at a CAGR of 15.8% until 2027.

Given the industry’s solid prospects, investors might consider buying more of fundamentally strong beverage stocks PEP, BUD, and PRMW this year. These stocks are well-positioned to capitalize on the industry’s tailwinds.

PepsiCo, Inc. (PEP)

PEP manufactures, markets, distributes, and sells various beverages and convenient foods worldwide. It has seven operating 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.

Recently, the company announced a $216 million investment in long-term partnership agreements with three major farmer-facing organizations: Practical Farmers of Iowa (PFI), Soil and Water Outcomes Fund (SWOF), and the IL Corn Growers Association (ICGA), to support regenerative agriculture practices across the United States.

The combined impact of these three strategic partnerships is expected to support the accelerated uptake of regenerative practices on more than three million acres and deliver approximately three million metric tons of greenhouse gas emission reductions and removals by 2030.

On January 13, PEP launched a new and improved Pepsi Zero Sugar. Through taste and trial and new sweetener formula, the brand is proving to consumers that zero never tasted so good. This reflects the company’s constant innovative offerings by identifying consumer trends and preferences to meet consumer demand.

On February 1, PEP increased its quarterly dividend by 7% from the previous year’s value to $1.15 per share, payable to shareholders on March 31, 2023.  This marked the company’s 50th consecutive annual dividend increase.

PEP pays a dividend of $4.60 per share annually, which translates to a 2.61% yield on the current price. Its dividends have grown at 6.4% and 7.4% CAGRs over the past three and five years, respectively. Its four-year average dividend yield is 2.75%.

PEP’s net revenue increased 10.9% year-over-year to $27.99 billion in the fourth quarter that ended December 31, 2022. Its non-GAAP gross profit grew 11.5% from the year-ago value to $14.71 billion, while its non-GAAP operating profit increased 6.9% year-over-year to $2.93 billion. Also, the company’s non-GAAP attributable net income came in at $2.31 billion and $1.67 per share, up 8.5% and 9.2% year-over-year, respectively.

Street expects PEP’s revenue to increase 6.7% year-over-year to $17.28 billion for the fiscal first quarter (ending March 31, 2023). Its EPS is expected to increase 7.6% year-over-year to $1.39 in the same quarter. Moreover, the company surpassed the EPS and revenue estimates in each of the trailing four quarters, which is promising. 

The stock has gained 8.9% over the past nine months to close the last trading session at $176.51.

PEP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Among the 36 stocks in the A-rated Beverages industry, it is ranked #18. PEP is also rated a B in Stability and Quality. To see additional POWR Ratings for Growth, Value, Momentum, and Sentiment for PEP, click here.

Anheuser-Busch InBev SA/NV (BUD)

Headquartered in Leuven, Belgium, centuries-old BUD produces, distributes, and sells beer, alcoholic beverages, and soft drinks worldwide. It offers a portfolio of approximately 500 beer brands.

On March 16, the company was recognized as a Creative Marketer of the Year by Cannes Lions for two years in a row. Simon Cook, Chief Executive Officer of LIONS, said, “ABI is the first company to be awarded for two consecutive years. This win bucks the trend and demonstrates an on-going commitment to creativity as a driver for growth.”

BUD’s revenue came in at $14.67 billion for the fiscal fourth quarter that ended December 31, 2022, up 3.3% year-over-year. Its profit increased 40.6% year-over-year to $3.30 billion. Also, its normalized EBITDA came in at $4.95 billion, up marginally year-over-year.

Analysts expect BUD’s EPS and revenue to increase 7.8% and 6.9% year-over-year to $0.81 and $15.83 billion, respectively, for the fiscal second quarter (ending June 2023). It has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the four trailing quarters.

BUD’s shares have gained 26.9% over the past six months to close the last trading day at $61.65.

BUD’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It has a B grade for Quality, Sentiment, and Stability. It is ranked #7 out of 36 stocks in the same industry.

Click here to see the other ratings of BUD for Growth, Value, and Momentum.

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.

On February 3, PRMW acquired an additional spring water source adjacent to its current Mountain Valley spring in Garland County, Arkansas. Tom Harrington, CEO of PRMW, believes that the additional water source supports the company’s continued growth and could strengthen its commitment to offer sustainable water solutions to customers across its footprint.

In the same month, PRMW increased its quarterly dividend by 14.3% to $0.08 per share, payable on March 27, 2023. Its four-year average dividend yield is 1.73%, and its current dividend of $0.32 translates to a 2.26% yield on prevailing prices. Its dividend payouts have grown at a 6.5% CAGR over the past three years and a 3.9% CAGR over the past five years.

For the fourth quarter that ended on December 31, 2022, PRMW’s net revenue rose 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.  Also, its adjusted EBITDA increased 9% from the prior-year quarter to $107.30 million. 

The consensus revenue estimate of $532.59 million for the first quarter (ending March 31, 2023) represents a marginal increase year-over-year. The consensus EPS estimate of $0.08 for the current quarter indicates a 15.1% year-over-year growth. The company surpassed the consensus revenue estimates in three of the trailing four quarters.

Over the past nine months, the stock has gained 11.2% to close the last trading session at $14.18.

PRMW’s solid prospects 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 has a B grade for Growth, Stability, and Quality. Within the Beverages industry, it is ranked #5.

Click here to see the additional ratings for PRMW (Value, Momentum, and Sentiment).

Consider This Before Placing Your Next Trade…

We are still in the midst of a bear market.

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PEP shares were trading at $176.41 per share on Thursday afternoon, down $0.10 (-0.06%). Year-to-date, PEP has declined -1.69%, versus a 3.20% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...

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