The stable demand for beverages, irrespective of economic conditions and rising disposable income among consumers, primarily drives the beverage market. In addition, the evolving consumer preferences and the growing awareness regarding the importance of nutrition and overall well-being are augmenting the beverage sector’s growth.
Given this backdrop, investors could consider buying quality beverage stocks such as Primo Water Corporation (PRMW), Ambev S.A. (ABEV), and Embotelladora Andina S.A. (AKO.B). Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the beverage industry’s prospects.
Beverage consumption is mostly continuing to be dominated by taste, while health-focused consumers are strongly gravitating toward healthier drink options. Alongside, new trends like low- or no-alcohol beverages and flavored mixes and cocktails are taking shape, as evidenced by the 26% rise in launches and flavored beers accounting for a 14% increase.
The growing focus on health has driven the consumption of sanitary packaged goods and clean drinking water, thus bolstering the demand for safe drinking water. The U.S. bottled water market will grow by a 5.8% CAGR from 2024 to 2030.
Moreover, the demand for upscale and decadent beverages has increased thanks to rising disposable incomes. Rapidly evolving consumer preferences towards ready-to-drink beverages due to their lightweight and portability features, coupled with growing consumption of alcoholic beverages, have contributed to the industry’s growth. The global beverage market is projected to grow at a 4.3% CAGR to reach $2.21 trillion by 2029.
Additionally, the growing relevance of e-commerce has boosted beverage sales through various digital channels, making it easy and accessible for the consumer to buy a wide variety of beverages, including alcoholic and non-alcoholic drinks, tea, coffee, and energy drinks. As per Statista, revenue in the beverages market is projected to grow at a CAGR of 10.7%, reaching $187.20 billion by 2029.
In light of these encouraging trends, let's examine the fundamentals of the three Beverages stock picks, beginning with the third choice.
Stock #3: Primo Water Corporation (PRMW)
PRMW provides pure-play water solutions for residential and commercial customers. It offers bottled water, water dispensers, purified bottled water, self-service refill drinking water, premium springs, mineral water, sparkling and flavored essence water, filtration units, and coffee.
PRMW’s trailing-12-month CAPEX / Sales of 7.43% is 123% higher than the industry average of 3.33%. Similarly, its trailing-12-month gross profit margin and net income margin of 64.56% and 14.21% are 82.8% and 199.8% higher than the industry averages of 35.32% and 4.74%, respectively.
PRMW’s net revenue for the first quarter that ended March 30, 2024, stood at $452 million, up 9.6% year-over-year. Its adjusted EBITDA grew 24.2% over the prior-year quarter to $93.90 million. In addition, its adjusted net income and EPS increased 172.3% and 171.4% from the year-ago quarter to $30.50 million and $0.19, respectively.
For the quarter ending December 31, 2024, PRMW’s revenue is expected to increase 5.3% year-over-year to $461.81 million. Its EPS for the quarter ending June 30, 2024, is expected to rise 3.4% year-over-year to $0.25. The stock has gained 74.2% over the past year to close the last trading session at $22.66.
PRMW’s POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
PRMW has an A grade for Sentiment and a B for Growth and Quality. It is ranked #8 out of 33 stocks in the B-rated Beverages industry. Click here to see the additional POWR Ratings of PRMW for Value, Momentum, and Stability.
Stock #2: Ambev S.A. (ABEV)
Headquartered in São Paulo, Brazil, ABEV produces, distributes, and sells beer, draft beer, carbonated soft drinks, other non-alcoholic beverages, malt, and food products.
ABEV’s trailing-12-month levered FCF margin of 15.45% is 176.9% higher than the industry average of 5.58%. Likewise, its trailing-12-month Return on Common Equity and Return on Total Capital of 16.90% and 12.96% are 50.5% and 89.3% higher than the industry averages of 11.24% and 6.85%, respectively.
For the fiscal first quarter that ended March 31, 2024, ABEV’s net revenue stood at R$20.28 billion ($3.87 billion). The company’s gross profit amounted to R$10.22 billion ($1.95 billion). Its normalized operating profit came to R$4.90 billion ($934.83 million). Furthermore, its normalized profit came in at R$3.82 billion ($727.89 million) and R$0.23 per share.
Analysts expect ABEV’s EPS for the quarter ending June 30, 2024, to increase 6.7% year-over-year to $0.04. Its revenue for the quarter ending September 30, 2024, is expected to rise 1.3% year-over-year to $4.08 billion. ABEV’s stock has declined 1.4% intraday to close the last trading session at $2.19.
ABEV’s robust prospects are reflected in its POWR Ratings. It has an overall A rating, equating to a Strong Buy in our proprietary rating system.
ABEV has a B grade for Stability, Sentiment, and Quality. It is ranked #3 in the same industry. Beyond what we stated above, we have also rated ABEV for Growth, Value, and Momentum. Get all the ABEV ratings here.
Stock #1: Embotelladora Andina S.A. (AKO.B)
Headquartered in Santiago, Chile, AKO.B produces, markets, and distributes Coca-Cola trademark beverages in Chile, Brazil, Argentina, and Paraguay. It offers fruit juices, sports drinks, flavored waters, mineral and purified water, hard seltzers, PET bottles and preforms, pre-mixed cocktails, and more.
AKO.B’s trailing-12-month asset turnover ratio of 0.91x is 9.4% higher than the industry average of 0.83x. Its trailing-12-month EBIT margin and EBITDA margin of 13.25% and 16.86% are 42.1% and 30.9% higher than the industry averages of 9.32% and 12.87%, respectively.
AKO.B’s net sales and operating income for the fiscal first quarter that ended March 31, 2024, stood at $229 million and $842 million, respectively. For the same quarter, its net income and adjusted EBITDA increased 37% and 5.7% from the year-ago quarter to $74 million and $168 million, respectively.
Street expects AKO.B’s revenue for the quarter ending September 30, 2024, to increase 3.5% year-over-year to $775.12 million. Its EPS for the quarter ending June 30, 2024, is expected to rise 177.9% year-over-year to $0.26.
The company surpassed consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive. AKO.B has gained 27.7% over the past six months, closing the last trading session at $18.83.
AKO.B’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Value, Stability, and Quality. It is ranked first in the Beverages industry. Get AKO.B’s Growth and Momentum ratings here.
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ABEV shares were trading at $2.20 per share on Tuesday morning, up $0.01 (+0.46%). Year-to-date, ABEV has declined -21.43%, versus a 11.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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