The beverage industry is set for strong growth with increased disposable income and shifting consumer preferences toward ready-to-drink beverages. The industry's improved outlook is fueled by an increasing inclination toward healthier choices and the introduction of innovative flavors.
Given this backdrop, it could be wise to consider adding Constellation Brands, Inc. (STZ) and The Coca-Cola Company (KO) to one’s watchlist.
Before diving deeper into their fundamentals, let’s discuss why the beverages industry is well-positioned for growth.
The beverage market is mainly driven by increasing product demand among older adults. Additionally, evolving consumer preferences and growing awareness of the importance of nutrition and overall well-being are boosting market growth.
In 2024, the global food and beverage industry is set to grow by 9.6% year-over-year to $179.83 billion, emphasizing sustainability, plant-based options, and technological innovations such as food automation and precision fermentation.
Furthermore, the industry’s growth is driven by increased promotional efforts. The global beverages market is expected to reach $4.39 trillion by 2028, growing at a 4.3% CAGR. Simultaneously, heightened health concerns and rising demand for vegan options drive the plant-based beverage market, which is projected to reach $22.45 billion by 2026, growing at a 6.7% CAGR.
Considering these conducive trends, let’s take a look at the fundamentals of the featured Beverages industry stocks.
Stock #2: Constellation Brands, Inc. (STZ)
STZ produces, imports, markets, and sells beer, wine, and spirits in the United States, Canada, Mexico, New Zealand, and Italy. The company provides beer, primarily under the Corona Extra, Corona Premier, Corona Familiar, Modelo Especial, Vicky Chamoy, and Pacifico brands.
In terms of the trailing-12-month EBIT margin, STZ’s 31.74% is 276.6% higher than the 8.43% industry average. Likewise, its 36.12% trailing-12-month EBITDA margin is 220.8% higher than the 11.26% industry average. However, its 0.40x trailing-12-month asset turnover ratio is 52.5% lower than the 0.84x industry average.
STZ’s net sales for the third quarter (ended November 30, 2023) increased 1.4% year-over-year to $2.47 billion. Its gross profit rose 3.6% from the year-ago value to $1.27 billion. Also, its attributable net income and net income per share for the period came in at $509.10 million and $2.76, up 8.9% and 9.5% over the prior-year quarter.
Also, as of November 30, 2023, its total liabilities and stockholders’ equity stood at $25.06 billion, compared to $24.66 billion as of February 28, 2023.
For the quarter ended December 31, 2023, STZ’s EPS and revenue are expected to increase 6.1% and 5.2% year-over-year to $2.10 and $2.10 billion, respectively. It surpassed the Street EPS estimates in all of the trailing four quarters. Over the past six months, the stock has gained marginally to close the last trading session at $254.77.
STZ’s POWR Ratings reflect uncertainty. It has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a C grade for Growth, Momentum, Stability, and Sentiment. It is ranked #19 out of 32 stocks in the B-rated Beverages industry. To see STZ’s Value and Quality ratings, click here.
Stock #1: The Coca-Cola Company (KO)
KO manufactures, markets, and sells various non-alcoholic beverages worldwide. The company provides sparkling soft drinks, sparkling flavors, water, sports, coffee and tea, juice, value-added dairy, plant-based beverages, and other beverages.
On December 13, 2023, KO partnered with Supermodel Winnie Harlow to create AI-generated holiday cards showcasing her unique Christmas experiences from Jamaica to Canada. The initiative, using KO’s Create Real Magic tool, aims to disrupt traditional card representation, emphasizing creativity, kindness, and individuality, with users worldwide encouraged to generate and share their personalized cards.
On October 16, 2023, KO and Pernod Ricard announced plans to launch Absolut Vodka & Sprite as a ready-to-drink cocktail in 2024. The pre-mixed cocktail, featuring Absolut Vodka and Sprite, will debut in select European countries in early 2024, including the United Kingdom, the Netherlands, Spain, and Germany.
In terms of the trailing-12-month net income margin, KO’s 23.92% is 386.7% higher than the 4.91% industry average. Likewise, its 31.46% trailing-12-month EBITDA margin is 179.4% higher than the 11.26% industry average. However, its 0.47x trailing-12-month asset turnover ratio is 43.3% lower than the 0.84x industry average.
KO’s net operating revenues for the third quarter (ended September 29, 2023) increased 7.8% year-over-year to $11.91 billion. Its non-GAAP gross profit rose 10.2% over the prior-year quarter to $7.20 billion. The company’s non-GAAP operating income increased 8.5% year-over-year to $3.54 billion.
Its non-GAAP net income for the same quarter increased 6.6% year-over-year to $3.21 billion. In addition, its non-GAAP EPS came in at $0.74, representing an increase of 7.2% over the prior-year quarter.
Street expects KO’s EPS and revenue for the quarter ending December 31, 2023, to increase 7.6% and 3.9% year-over-year to $0.48 and $10.59 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has declined 4.2% to close the last trading session at $60.20.
KO’s POWR Ratings are consistent with this outlook. It has an overall rating of C, translating to Neutral in our proprietary rating system.
It has a C grade for Growth and Momentum. It is ranked #15 in the same industry. Beyond what we stated above, we have also given KO grades for Value, Stability, Sentiment, and Quality. Get all KO ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
KO shares fell $0.01 (-0.02%) in premarket trading Thursday. Year-to-date, KO has gained 2.16%, versus a 0.26% 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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