The beverage industry demonstrates consistent and stable demand regardless of economic conditions, making this industry notably resilient. Against the backdrop, three fundamentally sound beverage stocks, Constellation Brands, Inc. (STZ), Keurig Dr Pepper Inc. (KDP), and Molson Coors Beverage Company (TAP), could be worth adding to your watchlist as they seem well-positioned for substantial growth.
The Beverage market has grown significantly in recent years due to industry expansion, rising demand, technological advancements, increased consumer awareness, and new technology applications.
According to Statista, the U.S. beverage market is set to achieve a projected revenue of $64.38 billion in 2023. Over the period from 2023 to 2027, it is expected to demonstrate an annual growth rate of 15%, leading to a projected market volume of $112.60 billion by 2027.
Additionally, the non-alcoholic beverages segment has experienced a notable upward trend in recent years. Moreover, manufacturers have been encouraged to expand their production capacities globally, thanks to reduced trade restrictions and tariff barriers in the international market.
In 2022, the global non-alcoholic beverages market attained a value of $750.60 billion, and it is poised for significant expansion, reaching a projected value of $1.24 trillion by 2030, exhibiting a CAGR of 6.5% during the forecast period spanning from 2023 to 2030.
On the other hand, alcoholic beverages remain a popular recreational substance, with the increase in the global population of young adults driving its growth. The global alcoholic beverages market is projected to reach $2 trillion by 2031, growing at a CAGR of 2.5% between 2023 and 2031.
Considering the growth projections and the beverage industry's resilience, fueled by its inelastic demand and steady consumer consumption even during economic downturns, it presents an appealing opportunity for investors. Thus, investors could benefit from keeping a watchful eye on three beverage stocks STZ, KDP, and TAP.
Let us delve deeper into the fundamentals of the aforementioned stocks.
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 June 29, STZ declared a quarterly dividend of $0.89 per share, payable to its shareholders on August 24, 2023. The company’s annual dividend of $3.56 translates to a 1.31% yield on the prevailing prices, while its four-year average dividend yield is 1.45%.
Its dividend payouts have grown at CAGRs of 3.1% and 7.4% over the past three and five years, respectively. Also, it has a record of seven years of consecutive dividend growth.
On March 30, STZ formed a multi-year, multi-million-dollar partnership with Tastemade, a modern media company. This strategic collaboration aims to launch an innovative content studio dedicated to producing and distributing social and streaming content worldwide to enhance consumer engagement for STZ brand’s wine and spirits products.
For the first quarter of fiscal 2024, which ended May 31, 2023, STZ’s net sales increased 6.4% year-over-year to $2.51 billion, while its gross profit rose marginally from the year-ago value to $1.26 billion.
During the same period, its operating income and net income amounted to $764.70 million and $139.20 million, respectively. Also, its cash and cash equivalents came in at $192.50 million, up 44.2% compared to $133.50 million as of February 28, 2023.
Street expects STZ’s revenue and EPS for the second quarter (ending August 31, 2023) to increase 5.7% and 5.9% year-over-year to $2.81 billion and $3.36, respectively. Moreover, the company surpassed its EPS and revenue estimates in three of the trailing four quarters, which is promising.
Additionally, STZ’s revenue has grown at a CAGR of 5.4% and 4.5% over the past three and five years, respectively. While its EBITDA has improved at a CAGR of 2.8% over the past three years.
Over the past three months, the stock has gained 18.4% to close the last trading session at $270.57.
STZ’s POWR Ratings reflect this promising outlook. It has a B grade for Growth. In the 37-stock A-rated Beverages industry, it is ranked #25. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Click here to see STZ’s ratings for Value, Momentum, Stability, Sentiment, and Quality.
Keurig Dr Pepper Inc. (KDP)
KDP operates as a beverage company in the United States and internationally. It operates through four segments: Coffee Systems; Packaged Beverages; Beverage Concentrates; and Latin America Beverages.
On July 20, KDP and La Colombe entered into a strategic partnership, which involves a long-term sales and distribution agreement for La Colombe's ready-to-drink coffee, as well as a long-term licensing, manufacturing, and distribution agreement for La Colombe branded K-Cup® coffee pods.
Additionally, KDP is set to make an equity investment in La Colombe, allowing KDP to share in the anticipated value-creation benefits arising from this partnership.
Commenting on this, Bob Gamgort, Chairman and CEO of KDP, said, “This partnership will enable KDP to expand its reach into high growth ready-to-drink and super premium coffee segments and will meaningfully increase La Colombe's availability to consumers."
On July 14, KDP paid its shareholders a quarterly dividend of $0.20 per share. The company’s annual dividend of $0.80 translates to a 2.46% yield on the prevailing prices, while its four-year average dividend yield is 2.06%. Its dividend payouts have grown at a CAGR of 10.1% over the past three years.
KDP’s net sales for the second fiscal quarter (ended June 30, 2023) increased 6.6% year-over-year to $3.79 billion. Its gross profit grew 14.9% from the prior-year quarter to $2.04 billion.
The company’s attributable net income and EPS amounted to $503 million and $0.36, up 130.7% and 140% year-over-year, respectively. Also, its income from operations rose 34.4% from the year-ago value to $769 million.
The consensus EPS estimate of $0.50 for the third quarter (ending September 30, 2023) represents an 8.8% increase year-over-year. The consensus revenue estimate of $3.79 billion for the ongoing quarter reflects a 4.7% improvement year-over-year. Moreover, the company topped revenue estimates in three of the trailing four quarters.
Over the past three years, KDP’s revenue and net income have grown at 8.5% and 11.3% CAGRs, respectively. Likewise, its EPS and levered FCF increased at CAGRs of 11.5% and 8.3% over the same period, respectively.
The stock has gained 8% over the past month to close the last trading session at $33.76.
KDP’s strong fundamentals are reflected in its POWR Ratings. It has a B grade for Growth and Quality.
Within the same A-rated industry, it is ranked #23. Click here to see KDP’s ratings for Value, Momentum, Stability, and Sentiment.
Molson Coors Beverage Company (TAP)
TAP manufactures, markets, and sells beer and other malt beverage products under various brands in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. The company offers flavored malt beverages, including hard seltzers, craft, and ready-to-drink beverages.
On July 13, TAP declared a quarterly dividend on its Class A and Class B common stock of $0.41 per share, payable to its shareholders on September 15, 2023. The company’s annual dividend of $1.64 translates to a 2.33% yield on the prevailing prices, while its four-year average dividend yield is 2.44%.
On February 28, TAP announced the establishment of a centralized commercial function within its Americas business unit, aimed at accelerating its growth in the coming years. This new function will bring together multiple teams and geographies under a unified strategy, leading to a clearer prioritization of the total portfolio and geographic areas.
The consolidation is expected to enable the company to swiftly expand into new white spaces, brands, and capabilities. Additionally, the shift will offer increased commercial focus and support for TAP's non-alcohol and spirits portfolios, which have demonstrated successful growth over the past few years and are now ready to scale further.
In the first quarter, which ended March 31, 2023, TAP’s net sales increased 5.9% year-over-year to $2.35 billion, while its gross profit came in at $770.70 million. During the same period, the company’s net income and EPS stood at $73.20 million and $0.33, respectively.
In addition, its total current liabilities amounted to $3.31 billion, declining 2.1% versus $3.38 billion as of December 31, 2022.
Analysts expect TAP’s EPS and revenue for the second quarter (ended June 30, 2023) to improve 38.5% and 12.5% year-over-year to $1.65 and $3.29 billion, respectively. The company has an impressive earnings surprise history, surpassing the EPS estimates in three of its trailing four quarters.
In addition, its revenue has grown at a 1.4% CAGR over the past three years. TAP’s shares have gained 38.9% over the past nine months and 34.4% year-to-date to close the last trading session at $69.26.
It’s no surprise that TAP has an A grade for Growth. Out of 37 stocks in the same industry, it is ranked #20.
In addition to the POWR Ratings we’ve stated above, we also have TAP’s ratings for Value, Momentum, Stability, Sentiment, and Quality. Get all TAP ratings here.
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STZ shares were trading at $272.03 per share on Friday morning, up $1.46 (+0.54%). Year-to-date, STZ has gained 18.25%, versus a 20.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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