The alcohol industry suffered a setback amid the COVID-19 pandemic, which caused a dip in retail alcohol sales, with several stadiums, concert venues, bars, and restaurants closing or operating at limited capacity. However, alcohol consumption has been recovering with the reopening of bars and restaurants.
Moreover, with an increase in the young-adult demographic and the increase in millennials’ spending power, the alcoholic beverage industry is expected to grow markedly. According to a Business Wire report, the global alcoholic beverage market will grow at a CAGR of 2% by 2025.
Given this backdrop, it could be wise to bet on fundamentally strong alcohol stocks Diageo plc (DEO), Ambev S.A. (ABEV), Brown-Forman Corporation (BF-B), Compañía Cervecerías Unidas S.A. (CCU), and Fomento Economico Mexicano S.A.B. de C.V. (FMX).
Diageo plc (DEO)
Headquartered in London, the United Kingdom, DEO produces, markets, and sells alcoholic beverages worldwide. It provides its products primarily under the Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Tanqueray, and Guinness brands.
On April 19, 2022, DEO announced a new partnership with ecoSPIRITS to pilot a sustainable packaging format starting with Smirnoff and Captain Morgan in Southeast Asia, with the view of a later rollout across the Asia Pacific region. Preeti Arora Razdan, CEO, Southeast Asia, DEO, said, “This pilot is an important step in the right direction to innovate and model a more sustainable solution for all our markets in Southeast Asia.”
DEO’s net sales increased 15.8% year-over-year to £8 billion($8.61 billion) in the first quarter, which ended March 31, 2022. The company’s operating profit grew 22.5% year-over-year to £2.70 billion($2.91 billion). Also, its EPS came in at 84.30 pence, up 24.7% year-over-year.
DEO’s POWR Ratings reflect this promising outlook. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. It has a grade of B for Stability, Sentiment, and Quality.
In the 35-stock Beverages, it is ranked #18. In addition to the POWR Rating grades I’ve just highlighted, we’ve also rated it for Growth, Momentum, and Value. Get all of DEO’s ratings here.
Ambev S.A. (ABEV)
Based in Sao Paulo, Brazil, ABEV produces, distributes, and sells beer, draft beer, carbonated soft drinks, other non-alcoholic beverages, malt, and food products. Its segments include Brazil, Central America and the Caribbean, Latin America South, and Canada.
ABEV’s net revenue increased 10.8% year-over-year to R$18.44 billion ($3.89 billion) in the first quarter, which ended March 31, 2022. The company’s normalized profit grew 28.6% year-over-year to R$3.55 billion($749.92 million). Also, its normalized EPS came in at R$0.22, up 27.9% year-over-year.
For fiscal 2022, analysts expect ABEV’s EPS and revenue to increase 6.7% and 20.3% year-over-year to $0.16 and $16.23 billion, respectively. The stock has surged 5.7% year-to-date to close Friday’s trading session at $2.96.
ABEV’s strong fundamentals 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 Quality. Click here to access ABEV’s ratings for Growth, Value, Momentum, Sentiment, and Stability. ABEV is ranked #12 in the A-rated Beverages industry.
Brown-Forman Corporation (BF-B)
BF-B manufactures, distills, bottles, imports, exports, markets, and sells various alcoholic beverages. It provides spirits, wines, vodkas, tequilas, champagnes, brandy, bourbons, and liqueurs. The company offers its products primarily under the Jack Daniel’s, Woodford Reserve, Old Forester, and GlenDronach brands.
On May 26, 2022, BF-B announced that its Board of Directors declared a regular quarterly cash dividend of $0.19 per share on its Class A and Class B common Stock. Stockholders of record on June 8, 2022, will receive the cash dividend on July 1, 2022. It has paid regular quarterly cash dividends for 78 years and has increased the cash dividend for 38 consecutive years.
BF-B’s net revenue increased 16% year-over-year to $911 million in the third quarter, which ended January 31, 2021. The company’s operating income grew 24% year-over-year to $281 million, while its net income came in at $219 million, representing an 18% year-over-year increase. Also, its EPS came in at $0.45, up 19% year-over-year.
Analysts expect BF-B’s EPS and revenue to increase 15% and 12.2% year-over-year to $0.46 and $928.68 million, respectively, for the quarter ending July 31, 2022. The stock has surged 0.2% over the past three months to close Friday’s trading session at $66.56.
BF-B’s POWR Ratings reflect its solid prospects. The company has an overall rating of B, which translates to Buy in our proprietary rating system. In addition, it has an A grade for Quality and a B grade for Sentiment and Stability.
To see the additional POWR Ratings for BF-B (Value, Growth, and Momentum), click here. It is ranked #16 in the same industry.
Compañía Cervecerías Unidas S.A. (CCU)
CCU operates as a beverage company in Chile, Argentina, Bolivia, Colombia, Paraguay, and Uruguay. The company operates through three segments: Chile, International Business, and Wine. It produces and sells alcoholic and non-alcoholic beer under proprietary and licensed brands.
CCU’s net sales increased 23% year-over-year to CLP700.47 billion($847.56 billion) in the first quarter, which ended March 31, 2022. The company’s EBITDA grew 26% year-over-year to CLP135.13 billion($163.50 billion). Also, its EPS came in at CLP174.7, up 0.2% year-over-year.
For fiscal 2023, analysts expect CCU’s EPS to increase 14.9% year-over-year to $1.16. In addition, its annual revenue is expected to increase 10.8% year-over-year to $581.54 million for the quarter ending June 30, 2022. The stock has rallied 2.3% over the past month to close yesterday’s trading session at $13.68.
CCU’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock has a B grade for Value, Stability, Sentiment, and Quality. Within the same industry, CCU is ranked #3. To see CCU’s ratings for Growth and Momentum as well, click here.
Fomento Economico Mexicano S.A.B. de C.V. (FMX)
Based in Monterrey, Mexico, FMX operates as a bottler of Coca-Cola trademark beverages. It operates 20,431 OXXO stores; 3,652 drugstores; and 567 OXXO GAS service stations. It also operates small-box retail chain stores, retail service stations, and drugstores.
On April 12, 2022, FMX announced that Envoy Solutions, its specialized distribution subsidiary in the United States, reached an agreement to acquire Sigma Supply of North America Inc., an independent specialized distribution company based in Hot Springs, Arkansas. This transaction represents another important step in FMX’s strategic path to build a leading national distribution platform in the United States.
FMX’s revenue increased 18.6% year-over-year to Ps.147.64 billion ($7.56 billion) in the first quarter, which ended March 31, 2022. The company’s gross profit grew 17.1% year-over-year to Ps.54.47 billion ($2.79 billion), while its operating income came in at Ps.11.89 billion ($608.99 million), representing a 24.9% year-over-year increase.
Analysts expect FMX’s EPS and revenue to increase 378.9% and 72% year-over-year to $0.91 and $7.63 billion, respectively, for the quarter ending June 30, 2022. The stock has surged 4.6% over the past six months to close Friday’s trading session at $75.57.
It’s no surprise that FMX has an overall B rating, which equates to Buy in our POWR Ratings system. In addition, the stock has an A grade for Stability and a B grade for Growth, Sentiment, and Quality.
Click here to see FMX’s ratings for Momentum and Value as well. FMX is ranked #6 in the same industry.
DEO shares were trading at $187.16 per share on Tuesday afternoon, up $1.26 (+0.68%). Year-to-date, DEO has declined -14.33%, versus a -12.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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