Despite macroeconomic concerns, beverage demand is expected to remain steady. So, quality beverage stocks Constellation Brands, Inc. (STZ), Ambev S.A. (ABEV), and Compañía Cervecerías Unidas S.A. (CCU) could be wise additions to your portfolio now.
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the beverage industry.
According to Statista, beverage revenue is expected to increase at a CAGR of 15% to reach $112.6 billion by 2027. Revenue this year is projected to reach $64.38 billion.
Also, as customers become more concerned about their physical and emotional well-being, there has been a shift toward non-alcoholic beverages. According to Pattern Data Science, 52% of consumers are substituting alcohol with non-alcoholic beverages. In the United States, 517 million cups of coffee are consumed daily, and 66% of Americans drink coffee daily.
In addition, the functional beverages market is expected to grow at a 6.5% CAGR to $261.56 billion by 2032. Demand for functional beverages has increased as a result of consumers looking for healthier food and beverages.
This trend is fueled by rising health consciousness and disposable income, which enable industry players to offer low-calorie, fat-free drinks and plant-based alternatives and stimulate market expansion.
Considering these conducive trends, let’s look at the fundamentals of the three Beverages stock picks, beginning with number 3.
Stock #3: 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.
On August 9, 2023, STZ-acquired Robert Mondavi Winery unveiled Arch & Tower, a downtown Napa site, in conjunction with a multi-year overhaul of the renowned Highway 29 winery. This could enhance STZ’s presence in Napa Valley, broadening its appeal to wine enthusiasts and bolstering its portfolio and brand recognition in the premium wine sector.
STZ’s trailing-12-month net income margin of 15.50% is 257% higher than the 4.34% industry average. Its trailing-12-month EBIT margin of 30.87% is 285.9% higher than the 8% industry average.
STZ has paid dividends for seven consecutive years. Over the last three years, STZ’s dividend payouts have grown at 4.1% CAGR. STZ’s four-year average dividend yield is 1.44%. Its forward annual dividend of $3.56 translates to a 1.50% yield.
For the fiscal 2024 second quarter that ended August 31, 2023, STZ’s net sales increased 6.6% year-over-year to $3.05 billion. Its net income and EPS attributable to STZ stood at $690 million and $3.74, compared to a net loss and loss per share of $1.15 billion and $6.30 in the previous year’s quarter.
The consensus revenue estimate of 10.08 billion for the year ending February 2024 represents a 6.7% increase year-over-year. Its EPS is expected to grow 11.9% year-over-year, reaching $11.91 for the same period. It has surpassed EPS estimates in three of four trailing quarters. STZ’s shares have gained 6.2% over the past year to close the last trading session at $237.80.
STZ’s POWR Ratings reflect this promising outlook. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
STZ also has a B grade for Sentiment and Quality. It is ranked #20 out of 35 stocks in the B-rated Beverages industry. Click here to see the additional POWR Ratings for Value, Growth, Stability, and Momentum for STZ.
Stock #2: Ambev S.A. (ABEV)
ABEV, headquartered in São Paulo, Brazil, manufactures, distributes, and sells beer, draught beer, carbonated soft drinks, other non-alcoholic beverages, malt, and food products. It distributes its goods directly and through a network of independent distributors.
ABEV’s trailing-12-month net income margin of 17.26% is 297.6% higher than the industry average of 4.34%. Its trailing-12-month levered FCF margin of 12.81% is 273.2% higher than the industry average of 3.43%.
Over the last three years, ABEV’s dividend payouts have grown at 49.7% CAGR. ABEV’s four-year average dividend yield is 4.01%. Its forward annual dividend of $0.14 translates to a 5.73% yield.
During the second quarter that ended June 30, 2023, ABEV’s net revenue increased 5.1% year-over-year to R$18.90 billion ($3.75 billion). Its gross profit grew 7.5% from the year-ago value to R$9.27 billion ($1.84 billion).
Furthermore, the company’s normalized profit was R$2.69 billion ($531.94 million), while its EPS came in at R$0.16.
Street expects ABEV’s revenue to increase 9.3% year-over-year to $16.71 billion for the year ending December 2023. Its EPS is expected to be $0.18 for the same period. Shares of ABEV have lost marginally intraday to close the last trading session at $2.52.
ABEV’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #13 in the same industry. It has an A grade for Quality and a B grade for Stability. Click here to see additional ABEV ratings for Growth, Value, Sentiment and Momentum.
Stock #1: Compañía Cervecerías Unidas S.A. (CCU)
CCU is based in Santiago, Chile. It is a diversified beverage company operating as a brewer, soft drinks producer, water and nectar producer, wine producer, and pisco distributor. The company’s segments include Chile, International Business, and Wine. Its portfolio consists of a range of brands of alcoholic and non-alcoholic beer.
CCU’s trailing-12-month gross profit margin of 45.38% is 35.6% higher than the industry average of 33.46%. Its trailing-12-month CAPEX / Sales of 5.94% is 86.7% higher than the 3.18% industry average.
For the second quarter ended June 30, 2023, CCU’s revenue increased 2.9% year-over-year to CLP 574.24 billion ($614.73 million). The company’s gross profit increased 10.7% year-over-year to CLP 249.415 billion ($267 million). Also, its EBITDA came in at CLP 47.13 billion ($5.05 million), representing an increase of 45.1% year-over-year.
Analysts expect CCU’s EPS to increase 30.6% year-over-year to $1.03 for the year ending December 2023. It has surpassed EPS estimates in three of four trailing quarters. The stock has gained 9.2% over the past year to close the last trading session at $11.59.
It’s no surprise that CCU has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Value, Sentiment and Quality. It is ranked #8 in the Beverages industry.
Beyond what is stated above, we’ve also rated CCU for Growth, Stability and Momentum. Get all CCU ratings here.
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STZ shares were trading at $237.11 per share on Wednesday morning, down $0.69 (-0.29%). Year-to-date, STZ has gained 3.41%, versus a 14.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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