Can STZ and AKO.B Brew up Success in the Beverage Sector?

Despite a volatile macroeconomic environment, the beverage industry is expected to stay resilient due to steady demand for its products. So, quality beverage stock Embotelladora Andina S.A. (AKO.B) could be a wise addition to your portfolio now. However, I think it could be wise to wait for a better entry point in Constellation Brands, Inc. (STZ) for reasons discussed throughout this article.

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 14.6% to reach $62.46 billion by 2028. This growth can be attributed to various factors, such as the rising demand for healthier and functional beverages, increasing disposable income, and changing consumer preferences towards premium and innovative drinks.

In addition, the functional beverages market is expected to grow at a 4.5% CAGR to $62 billion by 2027. Energy drinks are the largest functional beverage category, totaling $16.0 billion, followed by sports drinks, accounting for $12.2 billion. Demand for functional beverages has increased as a result of consumers looking for healthier food and beverages.

Moreover, investors’ interest in defense stocks is evident from the iShares U.S. Consumer Goods ETF (IYK) 1.7% returns over the past month.

Let’s delve into the fundamentals of the featured stocks.

Stock to Buy:

Embotelladora Andina S.A. (AKO.B)

Headquartered in Santiago, Chile, AKO.B engages in the production, marketing, and distribution of Coca-Cola trademark beverages. Its diverse portfolio includes fruit juices, flavored beverages, sports drinks, and alcoholic options. Additionally, it distributes energy drinks, ice cream, and frozen products.

In terms of forward non-GAAP P/E, AKO.B is trading at 12.26x, 29.7% lower than its industry average of 17.44x. Its forward EV/Sales of 0.91x is 45.3% lower than the 1.66x industry average.

AKO.B’s trailing-12-month gross profit margin of 38.83% is 14.6% higher than the 33.89% industry average. Its trailing-12-month EBITDA margin of 15.85% is 40.7% higher than the industry average of 11.26%.

For the second quarter that ended June 30, 2023, AKO.B’s consolidated net sales increased 2.6% year-over-year to Ch$ 670.33 billion ($770.88 million). Its adjusted EBITDA grew 11.3% from the year-ago value to Ch$110.52 billion ($127.10 million). Also, its operating income rose 13.6% from the prior year’s quarter to Ch$78.14 billion ($89.86 million). Also, its net income grew 87.4% from the year-ago value to Ch$63.71 billion ($39.10 million).

Analysts expect AKO.B’s revenue to increase 4.8% year-over-year to $3.43 billion for the year ending December 2024. Its EPS is expected to grow 27.1% year-over-year to $1.49 for the same period. Over the past year the stock has gained 16.4% to close the last trading session at $14.59.

AKO.B’s POWR Ratings reflect this positive outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

AKO.B also has an A grade for Value and a B for Stability, Sentiment and Quality. It is ranked first among 35 stocks in the B-rated Beverages industry. Click here for the additional POWR Ratings for Growth and Momentum for AKO.B.

Stock to Hold:

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.

STZ’s forward non-GAAP PEG of 2.05% is 12.6% lower than the industry average of 2.35% while its forward EV/EBIT of 16.93% is 14.50% higher than the industry average of 14.79%

STZ’s trailing-12-month gross profit margin of 50.09% is 47.8% higher than the 33.89% industry average while, its trailing-12-month asset turnover ratio of 0.40x is 52.4% lower than the industry average of 0.84x.

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.

However, as of August 31, 2023, STZ’s total current assets stood at $3.43 billion compared to $3.50 billion as of February 28, 2023.

Street expects STZ’s revenue to increase 6.5% year-over-year to $10.07 billion for the year ending February 2024. Its EPS is expected to grow 11.7% year-over-year to $11.90 for the same period. The stock has gained 7.8% over the past nine months to close the last trading session at $235.86.

STZ’s uncertain fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, translating to a Neutral in our POWR Ratings system.

STZ is ranked #19 in the same industry. It has a C grade for Stability, Growth and Momentum. Beyond what is stated above, we’ve also rated STZ for Value, Sentiment and Quality. Get all STZ ratings here.

What To Do Next?

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AKO.B shares were trading at $14.59 per share on Friday morning, up $0.23 (+1.60%). Year-to-date, AKO.B has gained 7.01%, versus a 21.58% rise in the benchmark S&P 500 index during the same period.

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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