The beverage industry continues to experience resilient demand in the face of recession fears and inflationary challenges. Also, the trend towards healthier and non-alcoholic beverages has gained momentum, driven by increasing health consciousness.

Therefore, The Coca-Cola Company (KO) could be a solid buy. However, Anheuser-Busch InBev SA/NV (BUD) could be best kept on hold, and Fresh Vine Wine, Inc. (VINE) could be avoided, considering its bleak fundamentals.

The pandemic led to increased consumption of non-alcoholic and healthy beverages, which have gained popularity globally, becoming a staple in dining. Changing consumer preferences, a health-conscious population, and the demand for lighter, non-alcoholic drinks are driving long-term growth in the industry.

According to Statista, beverage revenue is expected to grow at a CAGR of 15.8%, resulting in a projected market volume of $163.90 billion by 2027. Revenue this year is projected to reach $91.03 billion.

In addition, the demand for functional water is on the rise currently. Functional water is vitamin-enriched water that has gained consumer popularity for convenience, perceived health benefits, and improved flavor over tap water.

The growing popularity of functional water among the working class and millennial population is expected to enhance the development of the market. As a result, the North American functional water market is projected to register a CAGR of 6.5% until 2028.

However, the food and beverage industry grapples with economic uncertainty and inflation, driving consumers toward affordability. Rising labor and logistics expenses are also forcing retailers to offer more promotions, putting pressure on profit margins.

In light of these trends, let's look at the fundamentals of the three Beverages stocks, beginning with the stock to sell.

Stock to Sell:

Fresh Vine Wine, Inc. (VINE)

VINE produces and sells low-carb and low-calorie wines in the United States and Puerto Rico. Its wine varietals include Cabernet Sauvignon, Pinot Noir, Chardonnay, Sauvignon Blanc, Rosé, and Sparkling Rosé. The company sells its products through wholesale, retail, and direct-to-consumer channels.

VINE’s trailing-12-month gross profit margin of negative 132.97% compares to the industry average of 32.61%. Its trailing-12-month levered FCF margin of negative 152.48% compares to the 3.41% industry average.

On July 31, 2023, VINE announced that it had received a notice from NYSE American LLC on July 27, 2023, stating that it was not compliant with listing standards due to the composition of its audit committee.

This was because the Interim Chief Executive Officer, Michael Pruitt, couldn't serve on the audit committee as he was not considered an independent director while in that role. The company appointed David Yacullo to the audit committee on July 27, 2023, regaining compliance with NYSE American's requirements.

For the fiscal first quarter ended June 30, 2023, VINE’s total net revenues decreased 67.6% year-over-year to $330.13 thousand. The company reported gross loss and operating loss of $2 million and $4.42 million. Moreover, its net loss per share amounted to $0.27.

The stock has declined 84.8% over the past year and 70.2% over the past nine months to close its last trading session at $0.45.

VINE’s POWR Ratings reflect its bleak fundamentals. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

VINE has a grade of F for Value, Quality, and Stability. It ranks last out of 38 stocks in the Beverages industry.

In addition to what we highlighted above, one can see VINE’s other ratings for Growth, Sentiment, and Momentum here.

Stock to Hold:

Anheuser-Busch InBev SA/NV (BUD)

Headquartered in Leuven, Belgium, BUD produces, distributes, markets, and sells beer and beverages.

BUD’s trailing-12-month gross profit margin of 54.21% is 66.2% higher than the 32.61% industry average, and its trailing-12-month levered FCF margin of 11.84% is 247.4% higher than the industry average of 3.41%. However, its trailing-12-month asset turnover ratio of 0.28x is 70% lower than the industry average of 0.92x.

BUD pays a $0.82 per share dividend annually, translating to a 1.47% yield on the current share price. Its four-year average dividend yield is 1.58%.

During the fiscal second quarter that ended June 30, 2023, BUD’s revenue rose 2.2% year-over-year to $15.12 billion. Its gross profit grew 1.3% from the prior-year quarter to $8.10 billion.

However, the company’s normalized EBITDA declined 3.7% from the year-ago quarter to $4.91 billion. Also, underlying profit attributable to equity holders of BUD and EPS fell 1.1% and 1.4% year-over-year to $1.45 billion and $0.72, respectively.

While analysts expect BUD’s revenue to increase 6.4% year-over-year to $61.50 billion, its EPS is likely to fall 2.7%year-over-year to $3.06 in the fiscal year 2023. Additionally, the company has surpassed the EPS estimates in each of the trailing four quarters but failed to surpass the revenue estimates in three of the trailing four quarters.

The stock has gained 16.4% over the past year but declined 7.2% year-to-date to close its last trading session at $55.72.

BUD’s POWR Ratings reflect its mixed outlook. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system.

It has a C grade for Value, Momentum, and Quality. It is ranked #16 within the same industry.

Click here to access additional BUD ratings (Value, Sentiment, Momentum, Quality, and Growth).

Stock to Buy:

The Coca-Cola Company (KO)

KO is a beverage giant 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 gross profit margin of 58.52% is 79.5% higher than the 32.61% industry average and its trailing-12-month levered FCF margin of 21.09% is 519% higher than the industry average of 3.41%.

KO has raised its dividend payout for 60 consecutive years. It pays a $1.84 per share dividend annually, translating to a 3.06% yield on the current share price. Its four-year average dividend yield is 3.02%. Over the last three years, KO’s dividend payouts have grown at a 3.6% CAGR.

KO’s net operating revenues increased 5.7% year-over-year to $11.97 billion in the fiscal second quarter that ended June 30, 2023. Its non-GAAP gross profit rose 6.6% from the year-ago quarter to $7.11 billion. The company’s non-GAAP operating income rose 9.1% year-over-year to $3.78 billion.

Additionally, KO’s non-GAAP net income and net income per share increased 10.5% and 11.4% from the prior-year quarter to $3.39 billion and $0.78, respectively.

KO’s revenue is expected to increase 3.1% year-over-year to $11.44 billion in the fiscal third quarter ending September 2023. Its EPS is expected to grow 1.1% year-over-year to $0.70 in the same quarter. It surpassed EPS and revenue estimates in all four trailing quarters, which is impressive.

Shares of KO declined marginally intraday to close the last trading session at $58.52.

KO’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall B rating equates to a Buy in our proprietary rating system.

KO has an A for Quality and a B for Stability and Sentiment. It is ranked #12 in the same industry.

To see KO’s additional POWR Ratings for Growth, Value, and Momentum, click here.

What To Do Next?

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KO shares were trading at $58.64 per share on Wednesday morning, down $0.18 (-0.31%). Year-to-date, KO has declined -6.40%, versus a 17.41% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

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