The beverage industry is expected to expand exponentially in the coming years, driven by high disposable income, rising urbanization, and changing lifestyles. The growing consumer preference toward healthy beverages is expected to provide opportunities for companies in this space.
Furthermore, manufacturers in the food and beverage sector are reaping numerous advantages from artificial intelligence (AI). The growing use of AI algorithms to ensure autonomous procurement, production of purchase and work orders should contribute to the industry’s expansion.
The global beverage segment's revenue is projected to reach $207.90 billion in 2022 and grow at a CAGR of 14.09% to reach $401.90 billion by 2027.
Given the industry’s bright growth prospects, fundamentally strong beverage stocks The Coca-Cola Company (KO) and PepsiCo, Inc. (PEP) could be wise additions to your portfolio.
The Coca-Cola Company (KO)
KO is a manufacturer of beverages. Its segments include Europe; the Middle East and Africa; Latin America; North America; Asia Pacific; Global Ventures; and Bottling Investments. It owns and sells five non-alcoholic sparkling soft drink brands, including Coca-Cola, Sprite, Fanta, Diet Coke, and Coca-Cola Zero Sugar over 200 countries.
On September 29, KO and Molson Coors Beverage Company (TAP) entered into an exclusive deal to create and commercialize Topo Chico Spirited, a line of spirits-based, ready-to-drink cocktails.
With unrivaled flavors and a history rooted in the legendary 125-year-old master brand, it is anticipated to shake up the canned cocktail market. It will be launched in more than 20 markets across the country in 2023 and might aid in boosting the company’s revenue stream.
For the fiscal 2022 third quarter ended September 30, 2022, KO’s net operating revenues increased 10% year-over-year to $11.06 billion, while its gross profit grew 7% from the year-ago value to $6.50 billion. Its income before taxes rose 12% from the prior year’s period to $3.44 billion.
In addition, the company’s consolidated net income rose to $2.82 billion, a 14% increase year-over-year, and its EPS stood at $0.65, a 14% increase from the prior year’s period.
The company has raised its dividends for 60 consecutive years. It pays a $1.76 per share dividend annually, which translates to a 2.76% yield on the current price. KO’s dividend payments have grown at a CAGR of 3.5% over the past five years. Its four-year average dividend yield is 3.07%.
The consensus EPS estimate of $2.49 for the current fiscal year (ending December 2022) indicates a 7.4% year-over-year improvement. Likewise, the current year’s consensus revenue estimate of $42.72 billion indicates a rise of 10.5% from the previous year. Moreover, KO has surpassed the consensus EPS estimates in all four trailing quarters, which is impressive.
Shares of KO have gained 1.9% over the past month and 9.6% over the past year to close the last trading session at $63.82.
KO’s POWR Ratings reflect its promising outlook. The stock 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, each weighted to an optimal degree.
The stock has an A grade for Sentiment and a B for Quality and Stability. Within the Beverages industry, it is ranked #16 of 34 stocks.
Click here to see additional ratings of KO for Growth, Value, and Momentum.
PepsiCo, Inc. (PEP)
PEP manufactures and sells convenient foods and beverages globally. Its segments include 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. It also offers spreads and dips.
On December 14, Doritos introduced Doritos After Dark™, an after-hours food experience offering elevated, globally inspired bites. With 43% of consumers and half (49%) of Gen Zers believing that snacking is most satisfying after dark, according to Frito-most Lay's recent Snack Index1, this launch will enable PEP to grow its client base and boost its revenue stream.
For the fiscal 2022 third quarter ended September 3, 2022, PEP’s net revenue increased 8.8% year-over-year to $21.97 billion, while its gross profit grew 8% year-over-year to $11.66 billion. Its operating profit rose 6.1% from the year-ago value to $3.35 billion.
In addition, the company’s net income rose to $2.72 billion, a 21.4% increase year-over-year, and its EPS stood at $1.95, a 21.9% increase from the prior year’s period.
PEP has raised its dividends for 50 consecutive years. It pays a $4.60 per share dividend annually, which translates to a 2.52% yield on the current price. The company’s dividend payments have grown at a CAGR of 7.4% over the past five years, and its four-year average dividend yield is 2.79%.
For the current fiscal year (ending December 2022), analysts expect PEP’s EPS to increase 8.2% year-over-year to $6.78. Likewise, the current year’s revenue is expected to grow 6.8% year-over-year to $84.88 billion. Moreover, PEP has surpassed the consensus EPS estimates in each of the four trailing quarters.
Furthermore, Analysts expect the company’s EPS and revenue for the next fiscal year (ending December 2023) to increase 7.6% and 3.2% year-over-year to $7.29 and $87.61 billion, respectively. The stock has gained 11.1% over the past six months to close the last trading session at $182.26.
PEP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has an A grade for Quality and a B for Growth and Stability. Within the same industry, PEP is ranked #10 of 34 stocks.
Beyond what we stated above, we also have PEP’s ratings for Value, Sentiment, and Momentum. Get all PEP ratings here.
KO shares rose $0.06 (+0.09%) in premarket trading Tuesday. Year-to-date, KO has gained 11.08%, versus a -18.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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