The beverage industry is popular among investors due to its inelastic demand, which helps keep it resilient during uncertain macroeconomic conditions. The industry is expected to grow due to shifting consumer preferences, technological advancements, effective marketing strategies, health-conscious consumers, and the rise of premium and craft beverages.
Against this backdrop, investors could consider buying fundamentally strong beverage stocks such as Carlsberg A/S (CABGY), Ambev S.A. (ABEV), and Coca-Cola FEMSA, S.A.B. de C.V. (KOF). Before delving deeper into their fundamentals, let’s discuss what’s shaping the beverage industry’s prospects.
The beverage industry's growth is driven by shifting consumer preferences, lifestyle changes, new product introductions, and the rise of healthy beverages. E-commerce has provided access to various beverage options, leading to a greater demand for unusual and unique flavors. The global beverage industry is expected to grow at a CAGR of 4.3%, reaching a market value of $2.21 trillion by 2029.
Meanwhile, as customers become more concerned about their physical and emotional well-being, they have shifted toward non-alcoholic and healthier beverages. The global non-alcoholic beverages market is estimated to reach $1.60 trillion by 2032, growing at a CAGR of 6.8%.
In addition, the global functional beverages market is expected to grow at a 5.6% CAGR to $57.60 billion by 2028. Health-conscious consumers seeking healthier options with added benefits like improved energy, immunity, and digestion are driving the market growth.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Beverages picks, beginning with the third choice.
Stock #3: Carlsberg A/S (CABGY)
Headquartered in Copenhagen, Denmark, CABGY produces and sells beer and other beverage products internationally. The company offers core, craft, and specialty beers, soft drinks, and alcohol-free brews under various brands.
In terms of the trailing-12-month gross profit margin, CABGY’s 44.62% is 25.7% higher than the 35.51% industry average. Likewise, its 14.12% trailing-12-month EBIT margin is 54.4% higher than the 9.14% industry average. Its 17.20% trailing-12-month levered FCF margin is 213.3% higher than the 5.49% industry average.
CABGY reported revenues for the fiscal year ended December 31, 2023, increased 4.7% year-over-year to DKK73.59 billion ($10.57 billion). Its adjusted net profit for continuing operations and adjusted earnings per share for continuing operations were DKK7.43 billion ($1.07 billion) and DKK54.60, respectively. Additionally, its operating cash flow amounted to $7.47 billion ($1.07 billion).
According to the trading statement for the first quarter ended December 31, 2024, CABGY’s total revenue grew 4.4% year-over-year to DKK 17.13 billion ($2.46 billion). Its reported revenue growth from the Western Europe and Central & Eastern Europe regions were 6.6% and 8.6% year-over-year, respectively.
For the quarter ending June 30, 2024, CABGY’s revenue is expected to increase 2.3% year-over-year to $3.19 billion. Also, its revenue and EPS for the year ending December 31, 2024, are expected to increase 3.9% and 3% year-over-year to $11.04 billion and $1.62, respectively. The stock has gained 10.4% over the past six months to close the last trading session at $26.50.
CABGY’s POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CABGY has a B grade for Stability and Quality. Within the B-rated Beverages industry, it is ranked #10 out of 33 stocks. To see CABGY’s additional Growth, Value, Momentum, and Sentiment ratings, click here.
Stock #2: Ambev S.A. (ABEV)
Headquartered in São Paulo, Brazil, ABEV and its subsidiaries produce, distribute, and sell beer, draft beer, carbonated soft drinks, other non-alcoholic beverages, malt, and food products. It offers beer primarily under names including Skol, Brahma, Antarctica, Budweiser, Bud Light, Beck, Leffe, Hoegaarden, Cristal, Bohemia, The One, Corona, and others.
ABEV’s trailing-12-month CAPEX / Sales of 7.53% is 124.6% higher than the industry average of 3.35%. Additionally, its 23.62% trailing-12-month EBIT margin is 158.4% higher than the industry average of 9.14%. Also, its 18.19% trailing-12-month net income margin is 262.1% higher than the industry average of 5.02%.
For the fiscal fourth quarter ending December 31, 2023, ABEV’s net revenue amounted to R$22.69 billion ($4.40 billion), up 13.5% year-over-year. Its gross profit increased 9.5% from the year-ago value to R$11.71 billion ($2.27 billion). Furthermore, the company’s normalized profit and normalized EPS rose 13.5% and 13.8% year-over-year to R$5.30 billion ($1.03 billion) and R$0.33, respectively.
Street expects ABEV’s revenue for the quarter ending September 30, 2024, to increase 1.9% year-over-year to $4.11 billion. For fiscal 2025, its revenue and EPS are expected to increase 4.9% and 9.8% year-over-year to $17.31 billion and $0.20, respectively.
Also, it surpassed the Street EPS estimates in three of the trailing four quarters. Over the past six months, ABEV’s stock has declined 7.7% to close the last trading session at $2.41.
It’s no surprise that ABEV has an overall B rating, equating to a Buy in our POWR Ratings system.
It has an A grade for Quality and a B for Stability and Sentiment. It is ranked #6 in the same industry. Beyond what is stated above, we’ve also rated ABEV for Growth, Value, and Momentum. Get all ABEV ratings here.
Stock #1: Coca-Cola FEMSA, S.A.B. de C.V. (KOF)
Based in Mexico City, Mexico, KOF is a franchise bottler known for producing, marketing, and distributing Coca-Cola beverages globally. It offers a diverse portfolio across various countries, including sparkling beverages, water, juices, coffee, teas, alcoholic beverages, and more through various retail channels.
In terms of the trailing-12-month Return on Total Assets, KOF’s 7.42% is 51.4% higher than the 4.90% industry average. Likewise, its 17.11% trailing-12-month EBITDA margin is 32.3% higher than the 12.93% industry average. Its 17.65% trailing-12-month Return on Common Equity is 50.7% higher than the 11.71% industry average.
During the first quarter, which ended March 31, 2024, KOF’s total revenue rose 11.2% year-over-year to MXN63.80 billion ($3.76 billion). The company’s operating income and consolidated net income grew 11.6% and 28.7% from the prior-year quarter to MXN8.62 billion ($508.20 million) and MXN5.25 billion ($309.45 million), respectively.
In addition, its adjusted EBITDA increased 13.5% year-over-year to MXN11.94 billion ($704.42 million).
Analysts expect KOF’s EPS and revenue for the quarter ending June 30, 2024, to increase 10.6% and 4.2% year-over-year to $1.54 and $3.80 billion, respectively. The company surpassed the Street EPS estimates in each of the trailing four quarters. The stock has gained 24.8% over the past six months to close the last trading session at $97.57.
KOF’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Value, Stability, and Quality. It is ranked #2 in the Beverages industry. Click here to see KOF's rating for Growth and Momentum.
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.
ABEV shares were trading at $2.42 per share on Friday morning, up $0.01 (+0.41%). Year-to-date, ABEV has declined -13.57%, versus a 7.64% 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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