Despite heightened anxieties and market volatility, the beverage industry is poised to remain well-positioned on the backs of persistent demand. Moreover, consumers opting for healthy beverages should keep the sector buoyed amid rising health awareness. Against this backdrop, let us explore the upside potential of beverage stocks The Coca-Cola Company (KO) and Ambev S.A. (ABEV).
The beverage industry is anticipated to show resilience due to consistent demand for its product despite rising prices. The global beverage market is projected to expand at a CAGR of 13.8% between 2022 to 2028, reaching $518.48 billion by 2028.
With taste remaining a top driver, consumer choices are rapidly changing and showcasing an inclination toward healthy beverages. Furthermore, the demand for non-alcoholic brews is anticipated to boost.
As per Statista, revenue in the non-alcoholic drinks market amounts to $1.45 trillion in 2023 and is expected to expand at 4.6% CAGR between 2023 to 2027. As of 2023, soft drinks are the market’s largest segment, with a $0.85 trillion market volume.
Against this backdrop, fundamentally strong beverage stocks KO and ABEV might be solid buys to garner significant returns in the near future.
The Coca-Cola Company (KO)
KO is a beverage company that operates through segments, including Europe, the Middle East, and Africa; Latin America; North America; Asia Pacific; Global Ventures; and Bottling Investments. It owns and markets five non-alcoholic sparkling soft drink brands, and its products are sold in more than 200 countries.
On February 16, 2023, KO’s board of directors announced its 61st consecutive annual dividend increase, raising the quarterly dividend approximately by 4.6% from $0.44 to $0.46 per common share, payable to the shareholders on April 3, 2023. The company paid dividends totaling $7.60 billion in 2022.
KO’s annual dividend of $1.84 per share translates to a 3.09% yield on current prices. Its dividends have grown at 3.2% and 3.5% CAGRs over the past three and five years, respectively. Its four-year average dividend yield is 3.05%.
James Quincey, Chairman and CEO of KO, said, “As we begin 2023, we continue to invest in our capabilities and strengthen alignment with our bottling partners to maintain flexibility.”
KO’s trailing-12-month EBIT margin of 28.49% is 273.1% higher than the industry average of 7.64%. Also, its trailing-12-month net income margin and levered FCF margin of 22.19% and 18.17% are 589.6% and 619.2% higher than the industry averages of 3.22% and 2.53%, respectively.
For the fiscal fourth quarter that ended December 31, 2022, KO’s non-GAAP net operating revenues came in at $10.20 billion, up 7.7% year-over-year. Its non-GAAP gross profit increased 6% year-over-year to $5.76 billion. Furthermore, its non-GAAP net income and non-GAAP net income per share stood at $1.94 billion and $0.45, respectively.
For the fiscal first quarter ending March 2023, analysts expect KO’s EPS to increase marginally year-over-year to $0.65. Street expects its revenue to increase 2.9% year-over-year to $10.81 billion for the same quarter. KO topped consensus EPS and revenue estimates in all four trailing quarters.
KO’s shares lost 1.1% intraday to close the last trading session at $58.86.
KO’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall B rating indicates Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
KO has a B for Stability, Sentiment, and Quality. In the B-rated Beverages industry, it is ranked #17 out of 37 stocks.
Click here for the additional POWR Ratings for Growth, Value, and Momentum for KO.
Ambev S.A. (ABEV)
Headquartered in Sao Paulo, Brazil, ABEV 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.
ABEV’s trailing-12-month net income margin of 16.57% is 415.1% higher than the 3.22% industry average, while its trailing-12-month gross profit margin of 49.47% is 56.8% higher than the industry average of 31.55%.
ABEV’s revenue has grown at 14.4% and 11.4% CAGRs over the past three and five years, respectively. Moreover, its net income has grown at a 5.9% CAGR over the past three years.
For the fiscal third quarter that ended September 30, 2022, ABEV’s net revenue came in at R$20.59 billion ($3.95 billion), up 11.3% year-over-year. The company’s gross profit increased 7.6% from the prior-year quarter to R$9.94 billion ($1.91 billion). In addition, its normalized EBITDA increased 2.4% year-over-year to R$5.60 billion ($1.07 billion).
Analysts expect ABEV’s revenue to increase 7.7% year-over-year to $16.85 billion for the fiscal year ending December 2023. Its EPS is expected to increase 5.3% year-over-year to $0.14 for the same period. It surpassed EPS estimates in all four trailing quarters.
ABEV’s shares have gained 1.2% over the past five days to close the last trading session at $2.58.
It is no surprise that ABEV has an overall B rating, which equates to Buy in our POWR Ratings system.
It has an A grade for Quality and B for Stability and Sentiment. ABEV is ranked #10 in the same industry.
To see the additional POWR Ratings for ABEV (Value, Momentum, and Growth), click here.
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KO shares were unchanged in premarket trading Thursday. Year-to-date, KO has declined -7.47%, versus a 3.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors. More...
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