Thanks to the near-inelastic demand for food and beverages, the sector has shown resilience amid the inflationary environment. Also, with consumers staying home during the pandemic, many shifted to non-alcoholic and low-alcoholic beverages and increased their consumption of healthy beverages.

Fact.MR expects the global low-alcohol beverages market to reach $800 million in 2023. The demand for low-alcoholic beverage products is projected to increase at a 4.5% CAGR to $1.20 billion by 2033.

In addition to that, beverages have become increasingly popular in the global marketplace, making them an important commodity as consumers have become habitual in consuming soft drinks when eating and drinking out. The worldwide beverage segment’s revenue is projected to reach $207.90 billion in 2022.

Furthermore, changing consumer preference, a rising health-conscious population, and growing demand for lighter and non-alcoholic beverages is driving the industry’s long-term growth prospects. The global food and beverages market is expected to grow to $8.91 trillion in 2026 at a CAGR of 8.7%.

Given the industry’s solid prospects, investors might consider buying fundamentally strong PepsiCo, Inc. (PEP) and Constellation Brands, Inc. (STZ) that are well-positioned to capitalize on the industry’s tailwinds. However, it could be wise to avoid Celsius Holdings, Inc. (CELH) due to its weak fundamentals and poor growth prospects.

Stocks to Buy:

PepsiCo, Inc. (PEP)

PEP is a global food and beverage giant with a broad portfolio of soft drinks. The company’s segments include Frito-Lay North America, Quaker Foods North America, and PepsiCo Beverages North America. Its product offerings also include branded dips, cheese-flavored snacks, tortillas, and dairy products.

On December 5, 2022, announced a new packaging goal intended to double down the scale of reusable packing models from 10% to 20% by 2030. This ambition is driven by disruptive innovation that aligns perfectly with the company’s sustainable packaging vision.

On November 17, the company’s Board of Directors increased its quarterly dividend by 7% from the prior-year value to $1.15 per share, payable on January 6, 2023. PEP has the longest streak of increasing annual dividends for 50 consecutive years, which reflects its strong cash flows.

PEP’s net revenue increased 8.8% year-over-year to $21.97 billion for the third quarter that ended September 3, 2022. The company’s gross profit increased 8% year-over-year to $11.66 billion, while its non-GAAP operating profit rose 10.9% from the year-ago value to $3.59 billion. In addition, its non-GAAP net income increased 10.1% year-over-year to $2.73 billion. Also, its non-GAAP EPS came in at $1.97, up 10.1% year-over-year.

The consensus EPS estimate of $1.64 for the fourth quarter ending December 31, 2022, represents a 7.2% improvement year-over-year. The consensus revenue estimate of $26.59 billion for the current quarter indicates a 5.3% increase from the same period last year. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.

Over the past nine months, the stock has gained 11.5% to close the last trading session at $182.26.

PEP’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

It has an A grade for Quality and a B for Growth and Stability. Out of 34 stocks in the A-rated Beverages industry, it is ranked #10. Click here to see the other ratings of PEP for Value, Momentum, and Sentiment.

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 November 10, STZ announced it had completed its reclassification transaction and elimination of its Class B common stock. This reclassification is expected to provide a strong base for the company’s strategic growth.

On October 13, 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.

In terms of trailing 12-month EV/EBIT, STZ is currently trading at 17.01x, 5.8% lower than the industry average of 18.05x. Its trailing 12-month Price/Cash Flow multiple of 15.13 is 1.2% lower than the industry average of 15.32.

Analysts expect STZ’s EPS and revenue to increase 8.7% and 7.8% year-over-year to $11.08 and $9.51 billion, respectively, for the year ending February 28, 2023. It surpassed the consensus EPS estimates in each of the trailing four quarters.

Shares of STZ have gained 3.5% over the past nine months to close the last trading session at $232.41.

STZ’s solid prospects are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. It has a B grade for Growth and Sentiment. Within the same industry, it is ranked #17.

Beyond what is stated above, we’ve also rated STZ for Value, Momentum, Stability, and Quality. Click here to get all STZ ratings.

Stock to Avoid:

Celsius Holdings, Inc. (CELH)

CELH is engaged in developing, processing, marketing, selling, and distributing functional drinks and liquid supplements to a range of consumers. Its core offerings include pre- and post-workout functional energy drinks and protein bars. The company’s flagship brand is CELSIUS, a calorie-burning functional energy drink.

For the fiscal third quarter ended September 30, 2022, CELH’s total operating expenses increased 393.1% year-over-year to $226.25 million. The company’s loss from operations and net loss widened by 1,703.3% and 1,841.1% year-over-year to $147.60 million and $186.49 million, respectively. Also, its loss per share came in at $2.46, up significantly from the year-ago period.

In terms of forward EV/Sales, CELH is currently trading at 12.65x, 664.2% higher than the industry average of 1.66x. Its forward EV/EBITDA multiple of 102.5 is 791.3% higher than the industry average of 11.50. In addition, its forward Price/Sales ratio of 12.50 is substantially higher than the industry average of 1.12.

Analysts expect CELH’s EPS for fiscal 2022 to remain negative. Over the past month, the stock has gained 2.8% to close the last trading session at $106.79.

CELH’s POWR Ratings reflect this bleak outlook. It has an overall rating of D, equating to a Sell in our proprietary rating system.

It has an F grade for Value and Stability and a D for Sentiment. Again, within the same industry, it is ranked #32 of 34 stocks. To see the other ratings of CELH for Growth, Momentum, and Quality, click here.

PEP shares were trading at $182.99 per share on Tuesday morning, up $0.73 (+0.40%). Year-to-date, PEP has gained 8.16%, versus a -18.28% 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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