The overall macroeconomic climate is highly uncertain due to high inflation and the Fed’s commitment to keep raising interest rates to tame it. Also, the recent banking collapses have made investors extremely anxious. Concerns of an impending recession is weighing heavily on investors’ decisions.
To that end, it could be wise for investors to look at beverage stocks as the industry witnesses consistent demand regardless of economic cycles. Investors thirsty for returns could look to buy fundamentally strong beverage stocks Anheuser-Busch InBev SA/NV (BUD), Coca-Cola Consolidated, Inc. (COKE), and Primo Water Corporation (PRMW).
Beverage companies are often considered to be ‘recession proof’ as consumers are less likely to give up on drinking. The demand for soft drinks and alcoholic beverages is largely inelastic. Moreover, popular brands have strong pricing power enabling them to pass on raw material costs to consumers.
Beverage companies are including sustainable and healthy solutions to their portfolios as consumer preferences continue to evolve rapidly. The functional beverages segment is expected to grow significantly, mainly driven by the growing demand for functional beverages in emerging economies, increasing demand for sports drinks, and a rise in health expenditure.
Also, the addition of non-alcoholic beverages to their portfolio is helping beverage companies enter newer markets. Additionally, according to Statista, revenue in the beverages segment is projected to reach $163.90 billion by 2027, growing at a CAGR of 15.8%.
Given these factors, investors could look to buy fundamentally strong stocks BUD, COKE and PRMW.
Anheuser-Busch InBev SA/NV (BUD)
Headquartered in Leuven, Belgium, BUD produces, distributes, markets, and sells beer and beverages. It offers a portfolio of approximately 500 beer brands, which primarily include Budweiser, Corona, and Stella Artois; Beck's and Hoegaarden brands, among others.
BUD’s four-year average dividend yield is 1.72%, and its forward annual dividend of $0.53 per share translates to a 0.84% yield.
In terms of the trailing-12-month EBIT margin, BUD’s 24.94% is 226.6% higher than the 7.64% industry average. Its 10.33% trailing-12-month net income margin is 198% higher than the 3.47% industry average. Likewise, its 8.93% trailing-12-month Capex/Sales is 180.2% higher than the industry average of 3.19%.
BUD’s revenue increased 3.3% year-over-year to $14.67 billion for the fourth quarter that ended December 31, 2022. Its normalized profit attributable to equity holders of BUD increased 9.3% year-over-year to $1.97 billion.
The company’s normalized EBITDA increased 1.3% year-over-year to $4.95 billion. Its normalized EPS came in at $0.98, representing an 8.9% increase from the prior-year quarter.
BUD's EPS for the quarter ending June 30, 2023, is expected to increase 7.8% year-over-year to $0.81. Its revenue for the quarter ending March 31, 2023, is expected to increase 6.6% year-over-year to $14.11 billion. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
Over the past six months, the stock has gained 39.4% to close the last trading session at $62.97.
BUD’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
In addition, it has a B grade for Stability, Sentiment, and Quality. Within the A-rated Beverages industry, it is ranked #7 of 36 stocks.
Click here to see the additional POWR Ratings of BUD for Growth, Value, and Momentum.
Coca-Cola Consolidated, Inc. (COKE)
COKE manufactures, markets, and distributes nonalcoholic beverages, primarily products of The Coca-Cola Company in the United States. The company offers sparkling beverages, such as sparkling beverages; and still beverages, including energy products, as well as noncarbonated beverages comprising bottled water, ready-to-drink coffee and tea, enhanced water, juices, and sports drinks.
Over the last three years, COKE’s dividend payouts have grown at a 7.7% CAGR. Its four-year average dividend yield is 0.33%, and its forward annual dividend of $2 per share translates to a 0.37% yield. It paid a quarterly dividend of $0.50 per share on February 10, 2023.
In terms of the trailing-12-month net income margin, COKE’s 6.94% is 100.1% higher than the 3.47% industry average. Its 47.08% trailing-12-month Return on Common Equity is 349.1% higher than the 10.48% industry average. Likewise, its 1.73x trailing-12-month asset turnover ratio is 103.5% higher than the 0.85x industry average.
For the fiscal fourth quarter ended December 31, 2022, COKE’s net sales rose 12.2% over the prior-year quarter to $1.57 billion. Its non-GAAP gross profit increased 20.2% year-over-year to $596.95 million.
The company’s non-GAAP net income increased 100.6% year-over-year to $127.15 million, while its non-GAAP net EPS came in at $13.56, representing a 100.6% increase from the prior-year quarter.
Over the past six months, the stock has gained 32.2% to close the last trading session at $538.60.
It is no surprise that COKE has an overall rating of A, which equates to a Strong Buy. It is ranked first in the same industry. In addition, it has an A grade for Growth and a B for Value, Stability, and Quality.
To access the other ratings of COKE for Momentum and Sentiment, click here.
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 spring and mineral water, among other products.
On February 3, 2023, PRMW announced that the company has acquired an additional spring water source adjacent to its current Mountain Valley spring in Garland County, Arkansas.
PRMW’s CEO, Tom Harrington, believes that this acquisition supports PRMW’s continued growth and strengthens the company’s commitment to offer sustainable water solutions to customers across its footprint.
Over the last three years, PRMW’s dividend payouts have grown at a 6.5% CAGR. Its four-year average dividend yield is 1.73%, and its forward annual dividend of $0.32 per share translates to a 2.19% yield. It paid a quarterly dividend of $0.08 per share on March 27, 2023.
In terms of the trailing-12-month gross profit margin, PRMW’s 58.39% is 85.6% higher than the 31.46% industry average. Its 17.35% trailing-12-month EBITDA margin is 58.1% higher than the 10.98% industry average. Likewise, its 9.38% trailing-12-month Capex/Sales is 194.3% higher than the industry average of 3.19%.
PRMW’s net revenue for the fourth quarter ended December 31, 2022, increased 2.9% year-over-year to $533 million. The company’s adjusted net income increased 42.9% year-over-year to $25.30 million.
Its adjusted EBITDA increased 9% from the year-ago value to $107.30 million. Moreover, its adjusted net EPS came in at $0.16, representing a 45.5% increase year-over-year.
PRMW’s EPS and revenue for the quarter ending March 31, 2023, is expected to increase 15.1% and 1.2% year-over-year to $0.08 and $532.59 million, respectively. Over the past six months, the stock has gained 16.7% to close the last trading session at $14.58.
PRMW’s POWR Ratings reflect this positive outlook. PRMW has an overall rating of A, which translates to a Strong Buy. It is ranked #5 in the Beverages industry. It has a B grade for Growth, Stability, and Quality.
We have also given PRMW grades for Value, Momentum, and Sentiment. Get all PRMW ratings here.
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BUD shares fell $0.20 (-0.32%) in premarket trading Tuesday. Year-to-date, BUD has gained 4.55%, versus a 3.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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