Due to increasing disposable income and shifting consumer preferences towards ready-to-drink beverages, the beverage market is anticipated to boom.
In this article, I have evaluated three leading beverage stocks, Coca-Cola HBC AG (CCHGY), PepsiCo, Inc. (PEP), and Constellation Brands, Inc. (STZ), to determine the better investment. Based on a fundamental comparison of these stocks, CCHGY appears to be the better pick for reasons explained throughout this article.
The beverage market has grown significantly due to industry expansion, rising demand, technological advancements, increased consumer awareness, and new technology applications.
According to Statista, the U.S. beverage market is set to achieve a projected revenue of $64.38 billion in 2023. The industry is expected to demonstrate an annual growth rate of 15%, leading to a projected market volume of $112.60 billion by 2027.
Moreover, rising health-consciousness, increasing awareness regarding the need for an active lifestyle, and the growing rates of lifestyle diseases inspired health-oriented consumers to opt for healthy drinks.
The beverages market is also projected to grow due to an increase in the promotional and advertisement strategies by various manufacturers operating in the market. The global beverages market is expected to grow to $4.39 trillion by 2028, at a CAGR of 4.7% until 2028.
Considering these dynamic industry trends, let’s take a look at the fundamentals of the three Beverages stocks, starting with number 3. While CCHGY is rated A (Strong Buy), PEP is rated B (Buy) in our proprietary system. However, STZ’s overall C rating, suggests it could be wise to wait for a better entry point in the stock.
Stock #3: 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.
The company’s annual dividend of $3.56 translates to a 1.37% yield on the prevailing prices, while its four-year average dividend yield is 1.45%.
In terms of the trailing-12-month gross profit margin, CCHGY’s 49.74% is 52.5% higher than the 32.61% industry average. However, its 0.38x trailing-12-month asset turnover ratio is 58.3% lower than the 0.91x industry average.
For the first quarter of fiscal 2024, which ended May 31, 2023, STZ’s net sales increased 6.4% year-over-year to $2.51 billion, while its gross profit rose marginally from the year-ago value to $1.26 billion. During the same period, its operating income and net income amounted to $764.70 million and $139.20 million, respectively.
Street expects STZ’s revenue and EPS for the second quarter (ended August 31, 2023) to increase 6.3% and 6.1% year-over-year to $2.82 billion and $3.36, respectively. Moreover, the company surpassed its EPS and revenue estimates in three of the trailing four quarters.
Over the past nine months, the stock has gained 7.2% and declined 3.1% over the past month to close the last trading session at $259.50.
The stock has an overall C rating, equating to a Neutral in our POWR Ratings system.
It has a C grade for Momentum, Stability, and Quality. It is ranked #20 in the Beverages industry.
To access additional ratings for STZ’s Growth, Value, and Sentiment, click here.
Stock #2: PepsiCo, Inc. (PEP)
PEP manufactures, markets, distributes, and sells 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; Asia Pacific, Australia, and New Zealand; and China Region.
On July 20, PEP declared a quarterly dividend of $1.265 per share of its common stock, payable to shareholders on September 29, 2023.
PEP pays a dividend of $5.06 per share annually, translating to a 2.87% yield on the current price. Its four-year average dividend yield is 2.71%.
PEP’s trailing-12-month levered FCF margin of 5.95% is 74.5% higher than the 3.41% industry average, while its trailing-12-month EBIT margin of 14.07% is 78.2% higher than the industry average of 7.89%.
PEP’s net revenue increased 10.4% year-over-year to $22.32 billion in the fiscal second quarter that ended June 17, 2023. Its non-GAAP gross profit grew 13.1% from the year-ago value to $12.20 billion, while its non-GAAP operating profit increased 13.2% year-over-year to $3.86 billion.
Also, the company’s non-GAAP attributable net income came in at $2.89 billion and $2.09 per share, up 12% and 12.4% year-over-year, respectively.
Analysts expect PEP’s revenue and EPS for the fiscal third quarter ending September 2023 to increase 6.8% and 8.9% year-over-year to $23.47 billion and $2.15, respectively. Moreover, the company surpassed the EPS and revenue estimates in each of the trailing four quarters.
The stock has gained 4% over the past six months to close the last trading session at $178.93.
PEP’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
PEP is rated an A for Quality and a B for Sentiment and Stability. Within the Beverages industry, it is ranked #14.
Beyond what is stated above, we’ve also rated PEP for Momentum, Value, and Growth. Get all PEP ratings here.
Stock #1: Coca-Cola HBC AG (CCHGY)
Headquartered in Steinhausen, Switzerland, CCHGY engages in the production, distribution, and sale of non-alcoholic ready-to-drink beverages under franchise worldwide.
On June 22, 2023, CCHGY and Genpact Limited (G), a global professional services firm focused on delivering outcomes that transform businesses, announced a partnership to accelerate digital transformation for CCH’s finance operations.
In terms of the trailing-12-month EBIT margin, CCHGY’s 9.90% is 25.5% higher than the industry average of 7.89%. Its 6.48% trailing-12-month net income margin is 61% higher than the industry average of 4.02%.
CCHGY’s net sales revenue during the six months ended June 30, 2023, increased 19.3% year-over-year to €5.02 billion ($5.39 billion). Its net sales revenue per unit case came in at €3.63, representing a 14.7% increase from the prior-year quarter. The company’s net profit increased 152.3% year-over-year to €385.70 million ($414.05 million). Its EPS increased 151.2% year-over-year to €1.05.
CCHGY’s revenue for the quarter ending September 30, 2023, is expected to increase 17.6% year-over-year to $3.19 billion. Also, the company has surpassed revenue estimates in three of the trailing four quarters.
Over the past nine months, the stock has gained 17.3% to close the last trading session at $28.45.
It’s no surprise that CCHGY has an overall rating of A, which equates to Strong Buy in our proprietary system.
It has an A grade for Stability and a B in Value, Growth, and Quality. Within the same industry, it is ranked #2.
In addition to the POWR Ratings we’ve stated above, we also have CCHGY’s ratings for Momentum and Sentiment. Get all CCHGY ratings here.
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PEP shares were trading at $178.33 per share on Tuesday morning, down $0.60 (-0.34%). Year-to-date, PEP has gained 0.78%, versus a 17.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...
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