Despite rising consumer prices and the Fed’s interest rate hikes to bring them down, the beverage industry has shown resilience because of the inelastic demand. With high barriers to entry, the beverage industry consists of large brands, most of which are fundamentally sound enough to deliver high-profit margins irrespective of the economic conditions.
Moreover, with continued product innovations to meet the changing consumer preference, the industry is poised for solid growth. According to Statista, worldwide revenue in the Beverages segment is expected to grow at a CAGR of 14.8% to $353.6 billion by 2025.
Following the pandemic, the market demand for alcoholic beverages shifted from macrobrews to microbrews offering diversification. Premixed cocktails were the fastest-growing spirits category in 2021, stealing share from beer and hard seltzer. Sales of premixed cocktails surged 42.3% year-over-year to $1.6 billion.
Thus, given the inherent recession-proof nature of beverage stocks and their ability to generate solid returns in the long run, it could be wise to add fundamentally strong stocks The Coca-Cola Company (KO), PepsiCo, Inc. (PEP), and Heineken N.V. (HEINY).
The Coca-Cola Company (KO)
The global beverage company, KO, manufactures, markets, and sells various non-alcoholic beverages. The company provides sparkling soft drinks; flavored and enhanced water and sports drinks; juice, dairy, and plant-based beverages; tea and coffee; and energy drinks.
Over the last three years, KO’s dividend payouts have grown at a 3.1% CAGR. Its four-year average dividend yield is 3.1%, and its current dividend translates to a 3% yield. It is expected to pay a quarterly dividend of $0.44 per share on December 15, 2022.
KO’s non-GAAP net operating revenues increased 10% year-over-year to $ 11.06 billion for the third quarter ended September 30, 2022. Its non-GAAP gross profit increased 6.5% year-over-year to $6.54 billion.
The company’s non-GAAP net income increased 6.7% year-over-year to $3.01 billion. In addition, its non-GAAP EPS came in at $0.69, representing a 6.2% increase from the prior-year quarter.
KO’s revenue for the quarter ending December 31, 2022, is expected to increase 3.5% year-over-year to $9.80 billion. Its EPS for the quarter ending June 30, 2022, is expected to increase 1.2% year-over-year to $0.71. The company has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 4.7% to close the last trading session at $59.26.
KO’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the A-rated Beverages industry, it is ranked #21 out of 33 stocks. The company has a B grade for Stability, Sentiment, and Quality.
Click here to see the additional POWR Ratings of KO for Growth, Value, and Momentum.
PepsiCo, Inc. (PEP)
PEP manufactures, markets, distributes and sells various beverages and convenient foods worldwide. The company operates through seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, and South Asia; and Asia Pacific, Australia and New Zealand and China Region.
On August 2, 2022, PEP announced its strategic agreement with premium Romanian spring water brand AQUA Carpatica under which PEP will own a 20 percent equity stake in AQUA Carpatica. Under the agreement, PEP will have the right to distribute the spring water in Romania and Poland with opportunities to expand into other markets, including the United States.
CEO of PepsiCo Europe, Silviu Popovici, said, "We are confident that AQUA Carpatica's strong brand equity will resonate with our customers and consumers globally."
Over the past three years, PEP’s dividend payouts have grown at a 5.7% CAGR. Its four-year average dividend yield is 2.8%, and its current dividend translates to a 2.6% yield. It paid a quarterly dividend of $1.15 per share on September 30, 2022.
For the fiscal third quarter ended September 3, 2022, PEP’s net revenue increased 8.8% year-over-year to $21.97 billion. The company’s non-GAAP gross profit increased 8.4% from the year-ago period to $11.73 billion, while its non-GAAP operating profit increased 11% year-over-year to $3.59 billion.
The non-GAAP net income attributable to PEP increased 10.1% year-over-year to $2.73 billion. In addition, its adjusted EPS came in at $1.97, representing a 10% increase from the prior-year quarter.
Analysts expect PEP’s EPS and revenue for the quarter ending December 31, 2022, to increase 7.2% and 5.3% year-over-year to $1.64 and $26.59 billion, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 8.8% to close the last trading session at $178.78.
PEP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It is ranked #9 in the same industry. It has an A grade for Quality and a B for Growth, Stability, and Sentiment.
We have also given PEP grades for Value and Momentum. Get all PEP ratings here.
Heineken N.V. (HEINY)
Based in Amsterdam, the Netherlands, HEINY engages in the brewing and selling of beer and cider. It also provides soft drinks and water. It offers its beers under the Heineken, Amstel, Desperados, Sol, Tiger, Birra Moretti, Affligem, Lagunitas, and Mort Subite brands.
Over the last five years, HEINY’s dividend payouts have grown at a 0.7% CAGR. Its four-year average dividend yield is 1.5%, and its current dividend translates to a 1.2% yield.
HEINY’s total assets increased 7.2% to €52.35 billion ($52.11 billion) for the six months ended June 30, 2022, compared to €48.85 billion ($48.63 billion) for the fiscal year ended December 31, 2021. The company’s net revenue increased 34.7% year-over-year to €13.48 billion ($13.41 billion). Its profit increased 24.5% year-over-year to €1.45 billion ($1.44 billion). In addition, its EPS came in at €2.20, representing an increase of 22.2% year-over-year.
Analysts expect HEINY’s revenue for the quarter ending December 31, 2022, to increase 4.8% year-over-year to $7.20 billion. Over the past month, the stock has fallen 8.7% to close the last trading session at $41.76.
HEINY’s POWR Ratings reflect its positive outlook. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. It is ranked #12 in the Beverages industry. In addition, it has a B grade for Stability.
To see the other ratings of HEINY for Growth, Value, Momentum, Sentiment, and Quality, click here.
KO shares were trading at $59.37 per share on Monday morning, up $0.11 (+0.19%). Year-to-date, KO has gained 2.51%, versus a -19.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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