Food and beverage prices have significantly increased amid high inflation. However, demand for food and beverage in restaurants remain robust. In January, consumers spent more than $86.60 billion at restaurants on food and drink, up 24% year-over-year.
In addition, beverage companies are creating healthier beverages for the expanding health-conscious population, which should create new growth opportunities. The size of the US Sports Drink Market is expected to grow at a CAGR of 4.8% until 2029.
Also, revenue in the Beverages segment is projected to reach $91.03 billion this year and is expected to grow at a CAGR of 15.8% until 2027. In the United States, 517 million cups of coffee are consumed daily, and 66% of Americans drink coffee daily.
Therefore, fundamentally strong beverage stocks The Coca-Cola Company (KO), Ambev S.A. (ABEV), and Primo Water Corporation (PRMW) might be the best picks in 2023.
The Coca-Cola Company (KO)
KO is a beverage company that operates through segments, including Europe, the Middle East, and Africa; Latin America; North America; Asia Pacific; Global Ventures; and Bottling Investments. It owns and markets five non-alcoholic sparkling soft drink brands, and its products are sold in more than 200 countries.
KO's trailing-12-month EBIT margin of 28.10% is 274% higher than the 7.51% industry average, while its trailing-12-month gross profit margin of 58.14% is 84.4% higher than the industry average of 31.53%.
KO has paid dividends for 60 consecutive years. Over the last three years, KO's dividend payouts have grown at a 3.2% CAGR. While KO's four-year average dividend yield is 3.06%, its current dividend translates to a 3.06% yield.
KO's net operating revenue increased 7% year-over-year to $10.13 billion in the fourth quarter that ended December 31, 2022. Its gross profit grew 4.4% from the year-ago value to $5.16 billion, while its operating income increased 24.1% year-over-year to $2.08 billion.
KO's revenue is expected to increase 4.5% year-over-year to $44.98 billion in 2023. Its EPS is expected to grow 4.8% year-over-year to $2.6 in 2023. It surpassed EPS estimates in all four trailing quarters. KO's shares have lost marginally intraday to close the last trading session at $59.80.
KO's strong fundamentals are reflected in its POWR Ratings. The stock's overall B rating indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
KO has a B for Stability, Sentiment, and Quality. In the B-rated Beverages industry, it is ranked #15 out of 37 stocks. Click here for the additional POWR Ratings for Growth, Value, and Momentum for KO.
Ambev S.A. (ABEV)
Headquartered in Sao Paulo, Brazil, ABEV produces, distributes, and sells beer, draft beer, carbonated soft drinks, other non-alcoholic beverages, malt, and food products. The company operates through four segments: Brazil; Central America and the Caribbean; Latin America South; and Canada.
ABEV's trailing-12-month EBIT margin of 22.12% is 194.4% higher than the 7.51% industry average, while its trailing-12-month gross profit margin of 49.47% is 56.9% higher than the industry average of 31.53%.
While ABEV's four-year average dividend yield is 5.34%, its current dividend translates to a 5.73% yield.
For the fiscal third quarter that ended September 30, 2022, ABEV's net revenue came in at R$20.59 billion ($4.03 billion), up 11.3% year-over-year. The company's gross profit increased 7.6% from the prior-year quarter to R$9.94 billion ($1.94 billion). In addition, its normalized EBITDA increased 2.4% year-over-year to R$5.60 billion ($1.09 billion).
Analysts expect ABEV's revenue to increase 5.7% year-over-year to $16.27 billion in 2023. Its EPS is expected to increase by 9.4% per annum for the next five years. ABEV's shares have lost 3.1% Over the past month to close the last trading session at $2.52.
ABEV has an overall B rating, which equates to a Buy in our POWR Ratings system. It has an A grade for Quality and B for Stability and Sentiment. ABEV is ranked #8 in the same industry. To see the additional POWR Ratings for ABEV (Value, Momentum, and Growth), click here.
Primo Water Corporation (PRMW)
PRMW provides water directly to consumers and water filtration services in North America and Europe. It serves bottled water, purified bottled water, premium spring, sparkling and flavored water, mineral water, filtration equipment, coffee, water dispensers, and self-service refill drinking water.
PRMW's trailing-12-month EBITDA margin of 17.27% is 63.6% higher than the 10.55% industry average, while its trailing-12-month gross profit margin of 57.61% is 82.7% higher than the industry average of 31.53%.
PRMW has paid dividends for nine consecutive years. Over the last three years, PRMW's dividend payouts have grown at 5.3% CAGR. While PRMW's four-year average dividend yield is 1.73%, its current dividend translates to a 1.73% yield.
PRMW's net revenue came in at $584.60 million for the third quarter that ended October 1, 2022, up 6.1% year-over-year. Its operating income increased 6.6% from its year-ago value to $45 million, while its gross profit increased 12.9% year-over-year to $348.20 million.
Street expects PRMW's revenue to increase 4.7% year-over-year to $2.32 billion in 2023. Its EPS is estimated to increase 22.4% year-over-year to $0.82 in 2023. Over the past nine months, the stock has gained 18.7% to close the last trading session at $16.23.
It's no surprise that PRMW has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Growth, Stability, Sentiment, and Quality. It is ranked #6 in the same industry.
Beyond what is stated above, we've also rated PRMW for Value and Momentum. Get all PRMW ratings here.
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KO shares were trading at $59.88 per share on Wednesday morning, up $0.08 (+0.13%). Year-to-date, KO has declined -5.86%, versus a 4.55% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
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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