The beverage industry looks well-positioned for solid growth as evolving consumer preferences are influencing beverage makers to expand into ready-to-drink and healthier beverages, and also non-alcoholic drinks. Moreover, the integration of advanced technologies and the use of smart marketing tactics to boost sales is benefitting the industry.
Considering these factors, investors could consider buying fundamentally strong beverage stocks: Molson Coors Beverage Company (TAP), Carlsberg A/S (CABGY), and Ambev S.A. (ABEV).
Before diving deeper into their fundamentals, let’s discuss what is shaping the beverage industry’s prospects.
The beverage industry’s growth is being driven by evolving consumer preferences, changing lifestyles, the introduction of new products, and the growing popularity of healthy beverages as people become aware of the importance of nutrition and overall well-being.
According to Statista, the beverage market is expected to achieve a revenue of $248.70 billion in 2024. The industry is predicted to show an annual growth rate of 20.5%, leading to revenues of $524.20 billion by 2028.
Beverage makers are now focusing on healthier and non-alcoholic beverages to appeal to a newer audience, which will drive further growth. The global non-alcoholic beverages market is estimated to be $987.30 billion in 2024 and is anticipated to grow at a CAGR of 6.7%, reaching $1.89 trillion by the end of 2034.
With the growth in outdoor activities, gym workouts, and physical sports, beverage makers are introducing energy drinks that help replenish energy and boost performance. They are also experimenting with new flavors and sugar-free beverages to meet the changing consumer preferences. The global beverages market is projected to reach $4.39 trillion by 2028, growing at a 4.3% CAGR.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Beverages picks, beginning with the third choice.
Stock #3: Molson Coors Beverage Company (TAP)
TAP manufactures, markets, and sells beer and other malt beverage products under various brands internationally. The company offers flavored malt beverages, including hard seltzers, craft, and ready-to-drink beverages.
On September 11, 2023, TAP announced an expanded partnership with ZOA Energy, increasing investment to strengthen its portfolio beyond beer, aiming for growth in the energy drink market.
In terms of the trailing-12-month EBITDA margin, TAP’s 19.66% is 72.1% higher than the 11.42% industry average. Likewise, its 8.11% trailing-12-month net income margin is 69.5% higher than the 4.78% industry average. Additionally, its 5.74% trailing-12-month Capex/Sales is 78.6% higher than the 3.21% industry average.
TAP’s net sales for the fiscal fourth quarter ended December 31, 2023, increased 6.1% year-over-year to $2.79 billion. Its underlying EBITDA income increased 1.9% from the year-ago value to $566.10 billion. Also, the company’s underlying net income and net income per share stood at $257.40 million and $1.19, respectively.
For the quarter ending March 31, 2024, TAP’s EPS and revenue are expected to increase 35.5% and 6.3% year-over-year to $0.73 and $2.49 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 19% to close the last trading session at $61.44.
TAP’s positive outlook is reflected in its POWR Ratings. It 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.
It has a B grade for Growth and Value. It is ranked #13 out of 34 stocks in the B-rated Beverages industry. To see TAP’s Momentum, Stability, Sentiment, and Quality ratings, click here.
Stock #2: Carlsberg A/S (CABGY)
Headquartered in Copenhagen, Denmark, CABGY produces and sells beer and other beverage products internationally. The company offers core, craft, and specialty beers, soft drinks, and alcohol-free brews under various brands.
In terms of the trailing-12-month gross profit margin, CABGY’s 44.62% is 31.9% higher than the 33.82% industry average. Likewise, its 14.12% trailing-12-month EBIT margin is 65.1% higher than the 8.55% industry average. Its 17.20% trailing-12-month levered FCF margin is 263.6% higher than the 4.73% industry average.
CABGY reported revenues for the fiscal year ended December 31, 2023, increased 4.7% year-over-year to DKK73.59 billion ($10.58 billion). Its adjusted net profit for continuing operations and adjusted earnings per share for continuing operations were DKK7.43 billion ($1.07 billion) and DKK54.60, respectively. Additionally, its operating cash flow amounted to $7.47 billion ($1.07 billion).
Analysts expect CABGY’s revenue for the quarter ending March 31, 2024, to increase 1.2% year-over-year to $2.45 billion. Its EPS for the fiscal 2024 is expected to increase 367.6% year-over-year to $7.38. Over the past three months, the stock has gained 7.8% to close the last trading session at $26.67.
CABGY’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #11 in the same industry. It has a B grade for Stability, Sentiment, and Quality. To see CABGY’s Growth, Value, and Momentum ratings, click here.
Stock #1: Ambev S.A. (ABEV)
Headquartered in São Paulo, Brazil, ABEV and its subsidiaries engage in the production, distribution, and sale of beer, draft beer, carbonated soft drinks, other non-alcoholic beverages, malt, and food products. It offers beer primarily under names including Skol, Brahma, Antarctica, Budweiser, Bud Light, Beck, Leffe, Hoegaarden, Cristal, Bohemia, The One, Corona, and others.
In terms of the trailing-12-month Capex/Sales, ABEV’s 7% is 117.7% higher than the 3.21% industry average. Likewise, its 22.69% trailing-12-month EBIT margin is 165.4% higher than the 8.55% industry average. Furthermore, its 28.05% trailing-12-month EBITDA margin is 145.7% higher than the 11.42% industry average.
For the third quarter ending September 30, 2023, ABEV's net revenue amounted to R$20.32 billion ($4.10 billion). Its gross profit increased 1.6% from the year-ago value to R$10.09 billion ($2.03 billion). Furthermore, the company's normalized profit and normalized EPS rose 25.1% and 26% year-over-year to R$4.04 billion ($814.34 million) and R$0.25, respectively.
Street expects ABEV’s revenue for the quarter ended December 31, 2023, to increase 3.6% year-over-year to $4.51 billion. Likewise, its EPS for the quarter ending June 30, 2024, is expected to increase 13.4% year-over-year to $0.04. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, ABEV’s stock has gained 2.8% to close the last trading session at $2.56.
ABEV’s favorable outlook is reflected in its POWR Ratings. It has an overall rating of B, translating to a Buy in our proprietary rating system.
It has an A grade for Quality and a B for Stability and Sentiment. It is ranked #10 in the Beverages industry. In total, we rate ABEV on eight different levels. Beyond what we have stated above, we have also rated ABEV for Growth, Value, and Momentum. Get all the ratings of ABEV here.
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ABEV shares were trading at $2.58 per share on Thursday afternoon, up $0.02 (+0.78%). Year-to-date, ABEV has declined -7.86%, versus a 5.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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