Better Buy: National Beverage Vs. Coca-Cola Company

National Beverage Corp. (FIZZ) and The Coca-Cola Company (KO) are prominent beverage industry players. FIZZ produces and sells a portfolio of sparkling waters, juices, energy drinks, and carbonated soft drinks, primarily in the U.S. and Canada.

On the other hand, KO owns or licenses, markets beverage concentrates, finished sparkling soft-drinks brands, energy drinks, dairy, and syrups to fountain retailers such as restaurants and convenience stores.

The price index for non-alcoholic beverages increased 1.7% from the prior month. However, being non-cyclical in nature, non-alcoholic beverage companies should witness steady demand. Moreover, launching new products to keep pace with changing consumer tastes and easing supply chain issues should help fundamentally sound non-alcoholic beverage companies perform well.

Investors’ interest in this space is evident from the First Trust Nasdaq Food & Beverage ETF’s (FTXG) 5.3% returns over the past nine months versus the SPDR S&P 500 Trust ETF’s (SPY) 12.1% loss. The global non-alcoholic beverage market is expected to grow at a 4.7% CAGR to reach $1.19 trillion by 2028. Therefore, both FIZZ and KO should benefit.

While FIZZ gained 3.6% over the past year, KO surged 16.3%. KO is a clear winner with 7% gains over the past six months versus FIZZ’s 6.6% returns. But which of these stocks is a better pick now? Let’s find out.

Recent Financial Results

For the fiscal 2022 full year ended April 30, 2022, FIZZ’s revenue increased 6.1% year-over-year to $1.14 billion. However, the company’s gross profit came in at $338.70 million, representing a marginal decline from the prior-year period. Its operating income came in at $207.86 million for the quarter, indicating an 8.8% year-over-year decline.

FIZZ’s net income came in at $158.51 million, down 9% from its year-ago period. Its EPS decreased 9.1% year-over-year to $1.69. As of April 30, 2022, the company had $48.05 million in cash and cash equivalents. 

For the fiscal 2022 first quarter ended April 1, 2022, KO’s net operating revenues increased 16.4% year-over-year to $10.50 billion. The company’s non-GAAP gross profit came in at $6.27 billion, representing a 14.8% rise from the year-ago period. Its non-GAAP operating income came in at $3.30 billion for the quarter, representing an 18.2% rise from the prior-year period.

While its non-GAAP net income increased 16.6% year-over-year to $2.80 billion, its non-GAAP EPS rose 16.4% to $0.64. As of April 1, 2022, the company had $7.68 billion in cash and cash equivalents.

Past and Expected Financial Performance

Over the past three years, FIZZ’s revenue, net income, and EPS have increased at CAGRs of 3.9%, 4%, and 4.1%, respectively.

FIZZ’s EPS is expected to increase 10.1% year-over-year in fiscal 2023, ending April 30, 2022, and 8.1% in fiscal 2024. Its revenue is expected to grow 5.3% in fiscal 2023 and 5.1% in fiscal 2024. Its EPS is expected to grow at a 25.6% rate per annum over the next five years.

Over the past three years, KO’s revenue, net income, and EPS have grown at 5%, 15.2%, and 14.7% CAGRs, respectively.

Analysts expect KO’s EPS to increase 6.5% year-over-year in fiscal 2022, ending December 31, 2022, and 7.3% in fiscal 2023. Its revenue is expected to grow 8.2% year-over-year in fiscal 2022 and 5.3% in fiscal 2023. Its EPS is expected to improve at a rate of 6.6% per annum over the next five years.

Valuation

In terms of non-GAAP forward P/E, FIZZ is currently trading at 26.36x, 3.6% higher than KO’s 25.45x. In terms of trailing-12-month Price-to-Book, KO’s 10.97x compares with FIZZ’s 21.63x.

Profitability

KO’s trailing-12-month revenue is 35.2 times that of FIZZ’s. Moreover, KO is also profitable, with a 60.3% gross profit margin versus FIZZ’s 36.7%.

Furthermore, KO’s EBITDA margin, net income margin, and levered free cash flow margin of 33.2%, 25.7%, and 17.5% compare with FIZZ’s 19.9%, 13.9%, and 7%, respectively.

POWR Ratings

While KO has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, FIZZ has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

Both FIZZ and KO have been graded a C for Momentum, consistent with their mixed price performance over the past year.

KO has been graded a B in terms of Stability, which is in sync with its lower volatility compared to broader markets. KO has a 0.59 beta. FIZZ’s C grade for Stability reflects its relatively higher beta.

Of the 35 stocks in the A-rated Beverages industry, KO is ranked #13, while FIZZ is ranked #19.

Beyond what we have stated above, our POWR Ratings system has graded FIZZ and KO for Sentiment, Value, Growth, and Quality. Get all KO ratings here. Also, click here to see the additional POWR Ratings for FIZZ.

The Winner

Almost inelastic demand for non-alcoholic beverages in any business cycle should allow KO and FIZZ to stay afloat amid uncertain economic conditions. However, a relatively lower valuation and higher profitability make KO a better buy here.

Our research shows that the odds of success increase if one invests in stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Beverages industry.

FIZZ shares were trading at $49.47 per share on Friday afternoon, up $0.53 (+1.08%). Year-to-date, FIZZ has gained 9.13%, versus a -19.12% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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