With the inelastic demand for its products and the increasing disposable income of individuals, the beverage industry is well-poised for robust profitability and expansion. Further, evolving consumer preferences amid increased focus on physical and emotional well-being will boost demand for healthy drinks, propelling the market’s growth.
Given the industry’s bright growth prospects, quality beverage stocks PepsiCo, Inc. (PEP), Kirin Holdings Company, Limited (KNBWY), and Coca-Cola HBC (CCHGY) could be ideal additions to your portfolio for potential gains.
The beverages market is projected to reach $4.39 trillion by 2028, expanding at a CAGR of 4.3% during the forecast period (2023-2028). Growing health consciousness and the rising prevalence of lifestyle diseases encourage consumers to opt for healthy drinks, driving the market’s growth.
The non-alcoholic beverages market is poised to expand considerably, with health-conscious consumers increasingly inclining toward healthy beverage options. Drizly reported that non-alcoholic beer, wine, and spirits are growing in popularity in the U.S., drawing on both consumer surveys and its data.
According to Statista, revenue in the non-alcoholic drinks market is expected to be $1.45 trillion in 2023 and grow at a 4.7% CAGR between 2023 and 2027.
In addition, the growing participation of individuals in professional sports, recreational outdoor activities, and increased shift to physical fitness are creating high demands for dietary supplements, including energy drinks. Industry players are also focusing on manufacturing sugar-free beverages to cater to the needs of individuals with diabetes and other chronic conditions.
Fueled by the ongoing trends, the zero-sugar beverages market has taken the advanced gear. The market is expected to grow at a CAGR of 14.7% from 2023 to 2033, totaling $13.15 billion by 2033.
Given these encouraging trends, let’s look at the fundamentals of the three best Beverages stocks, beginning with the third choice.
Stock #3: PepsiCo, Inc. (PEP)
PEP manufactures, markets, distributes, and sells beverages and convenient foods globally. The company primarily offers its products under brands like Lay’s, Doritos, Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker, Aquafina, Emperador, Diet Mountain Dew, Diet Pepsi, and others.
On November 16, PEP declared a quarterly dividend of $1.265 per share, a 10% increase from the comparable year-ago period. This dividend is payable on January 5, 2024, to shareholders of record at the close of business on December 1, 2023. The dividend increase reflects the company’s robust capital structure and its ability to provide stable growth in the long run.
PEP pays an annual dividend of $5.06, which translates to a yield of 3.05% at the current share price. Its four-year average dividend yield is 2.7%. Moreover, the company’s dividend payouts have increased at a CAGR of 6.6% over the past five years. PepsiCo has raised its dividends for 51 consecutive years.
On October 19, Cheetos, a snack brand made by Frito-Lay, PEP’s subsidiary, launched a new product line, Cheetos Pretzels. With this launch, the brand delivers a new snack with a bold taste that will amaze the category.
"Our fans are always hungry for unique ways that they can experience Cheetos' signature cheesy flavor, which is why this latest innovation is breaking into an entirely new category," said Tina Mahal, senior vice president of marketing at Frito-Lay.
PEP’s net revenue increased 6.7% year-over-year to $23.45 billion in the third quarter that ended September 9, 2023. Its gross profit grew 9.6% from the year-ago value to $12.78 billion. The company’s net income rose 14.4% from the prior year’s quarter to $3.12 billion, and its EPS came in at $2.24, an increase of 14.8% year-over-year.
The company updated its full-year 2023 guidance to EPS growth of 13%, previously estimated at 12%. PEP reaffirmed its organic revenue growth of 10% for the full year.
Analysts expect PEP’s revenue and EPS for the fourth quarter (ending December 2023) to increase 1.5% and 3% year-over-year to $28.41 billion and $1.72, respectively. Also, the company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
For the fiscal year 2024, the company’s revenue and EPS are estimated to grow 4.7% and 7.9% from the prior year to $96.49 billion and $8.15, respectively.
The stock has declined marginally over the past month to close the last trading session at $165.68.
PEP’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Quality. Within the B-rated Beverages industry, PEP is ranked #11 of 35 stocks.
Click here to access additional ratings of PEP for Growth, Value, Momentum, Stability, and Sentiment.
Stock #2: Kirin Holdings Company, Limited (KNBWY)
Headquartered in Tokyo, Japan, KNBWY engages in the food and beverages, pharmaceuticals, and health science businesses. The company offers beer, wine, and spirits; dairy products; pharmaceutical products; and biochemical products. In addition, it operates factories and theme park businesses and manages a chain of Kirin City beer pubs.
On November 30, Kyowa Hakko Bio Co. Ltd, a subsidiary of KNBWY, received a no-question letter from the Food and Drug Administration (FDA) regarding its Generally Recognized as Safe Substances (GRAS) notices for three human milk oligosaccharides (HMOs). The company is committed to expanding the availability of these innovative ingredients in several countries.
On November 27, KNBWY launched a dual-care functional food supplement, Kirin iMUSE Immuno-Care and Healthya Visceral Fat Down. This product is a collaboration between Kirin iMUSE, Japan’s first immune care brand, and Kao Healthya, Japan’s first body fat care beverage brand from Kao Corporation.
KNBWY is committed to developing a broad line of functional food products with immune functions to help customers solve their health issues.
For the nine months that ended September 30, 2023, KNBWY’s revenue grew 6.2% year-over-year to ¥1.54 trillion ($10.67 billion). The company’s gross profit increased 5.5% from the year-ago value to ¥692.81 billion ($4.78 billion). Its normalized operating profit came in at ¥141.54 billion ($976.19 million), up 4.7% from the previous year’s quarter.
Furthermore, as of September 30, 2023, the company’s total assets were ¥2.94 trillion ($20.28 billion), compared to ¥2.54 trillion ($17.52 billion) as of December 31, 2022.
For the fiscal 2023 full year, KNBWY expects revenue of ¥2.11 trillion ($14.58 billion), while its normalized operating profit is expected to be ¥192 billion ($1.32 billion). Further, the company expects profit before tax and EPS to reach ¥196 billion ($1.35 billion) and ¥139.54, respectively.
Street expects KNBWY’s revenue for the fiscal year (ending December 2024) to increase 2.5% year-over-year to $14.55 billion. The company’s EPS for the same period is expected to grow 19.1% from the prior year to $1.16. Moreover, it has topped the consensus revenue estimates in three of the trailing four quarters.
Over the past three months, KNBWY’s stock has gained 4.2% to close the last trading session at $14.55.
KNBWY’s POWR Ratings reflect bright prospects. The stock has an overall grade of B, translating to a Buy in our proprietary rating system.
KNBWY has a B grade for Growth, Value, Stability, and Quality. It is ranked #9 among 35 stocks within the B-rated Beverages industry.
To access the other ratings of KNBWY for Momentum and Sentiment, click here.
Stock #1: Coca-Cola HBC (CCHGY)
Based in Steinhausen, Switzerland, CCHGY engages in the production, distribution, and sale of non-alcoholic ready-to-drink beverages internationally. The company markets and sells its products under Coca-Cola, Fanta, Sprite, Adez, Amita, Aperol, Avra, Fruice, Kinley, and other brands.
On November 1, CCHGY announced the completion of the previously announced acquisition of the Finlandia vodka brand from Brown-Forman Corporation for $220 million subject. Finlandia is expected to enhance CCHGY’s premium spirits credentials, driving growth opportunities with premium and super-premium Non-Alcoholic Ready-To-Drink (NARTD) products.
On June 22, CCHGY announced a partnership with Genpact (G), a global professional services company focused on delivering outcomes that transform businesses to accelerate digital transformation for Coca-Cola HBC’s finance operations and drive future growth.
“The partnership with Genpact makes us more agile and allows us to innovate and move faster on our transformation journey. It brings excellent opportunities for our business, customers, and, importantly, for our people,” said Spyros Mello, Strategy and Transformation Director, CCHGY.
During the third quarter ended on September 30, 2023, CCHGY’s net sales revenue increased 3.8% year-over-year to €2.79 billion ($3.01 billion).
For the first half that ended June 30, 2023, CCHGY’s net sales revenue increased 19.3% year-over-year to €5.02 billion ($5.40 billion). Its operating profit grew 102.1% year-over-year to €557.30 million ($599.45 million). The company’s comparable EBIT was €560.70 million ($545.03 million), an increase of 21.2% from the previous year’s period.
In addition, CCHGY’s net profit and comparable EPS rose 152.2% and 22.3% year-over-year to €385.70 million ($414.87 million) and €1.06, respectively.
For the fiscal year ending December 2023, the company’s revenue is expected to grow 10.9% year-over-year to $10.95 billion. Similarly, analysts expect CCHGY’s revenue for the fiscal year 2024 to increase 4.9% year-over-year to $11.49 billion. Also, the company topped the consensus revenue estimates in three of the trailing four quarters.
Shares of CCHGY have surged 10.8% over the past month and 21.1% year-to-date to close the last trading session at $28.65.
CCHGY’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
CCHGY has an A grade for Stability and a B for Growth and Value. It is ranked #4 out of 35 stocks in the B-rated Beverages industry.
In addition to the POWR Ratings we’ve stated above, we also have CCHGY ratings for Momentum, Sentiment, and Quality. Get all CCHGY 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.
PEP shares were trading at $167.01 per share on Monday morning, up $1.33 (+0.80%). Year-to-date, PEP has declined -4.90%, versus a 21.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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