The beverage market is growing steadily, driven by demand for healthier and innovative drinks and convenient distribution channels, fueled by consumer preferences and industry technological advancements.

Thus, investors could consider monitoring top beverage stocks Primo Water Corporation (PRMW), Embotelladora Andina S.A. (AKO.B), and Coca-Cola FEMSA, S.A.B. de C.V. (KOF) for potential investment opportunities. These stocks have an overall rating of A, equating to a Strong Buy in our proprietary POWR Ratings rating system. They also boast stable dividend payouts and robust profit margins.

But before delving into the analysis, let us have a look at the current dynamics in the beverage sector.

Consumer demand for premium, health-conscious beverages is driving non-alcoholic beverages market growth, with innovative offerings catering to changing demographics. Millennials and Gen Z, seeking moderation and balance, are fueling the shift toward diverse, sophisticated, non-alcoholic options.

This year, the global beverages market is projected to achieve a market value of $248.70 billion. It is forecasted to expand at a CAGR of 20.5% to reach $524.20 billion by 2028, serving approximately 1.90 billion users. The global non-alcoholic beverages market is expected to grow at a CAGR of 7.4% from 2024 to 2030.

Furthermore, the growing consumption of premium alcoholic beverages in developed economies boosts the mixers and juices segment. As consumers increasingly seek high-quality and artisanal spirits, there is a complementary rise in demand for premium mixers and juices to complement these beverages.

Besides, in 2023, U.S. spirits retained market dominance with $37.70 billion in revenue, surpassing beer and wine. Popular choices included vodka, high-end tequila, mezcal, and American whiskey, while ready-to-drink cocktails surged by 26.7% year-over-year to $2.80 billion in revenue.

Considering these conducive trends, let’s examine the fundamentals of three Beverages stocks, starting with the third choice.

Stock #3: Primo Water Corporation (PRMW)

PRMW provides water solutions for residential and commercial customers under various brands globally, sold through retailers and online. Their offerings include bottled water, dispensers, filtration equipment, and coffee products.

On December 1, 2023, PRMW paid a dividend of $0.08 per share on common shares. The company pays $0.32 annually, which translates to a yield of 2.09% on the prevailing price level, higher than its four-year average dividend yield of 1.82%. The company has raised its dividend payouts at a CAGR of 10.1% and 5.9% over the past three and five years, respectively.

PRMW’s trailing-12-month gross profit margin of 60.85% is 80.2% higher than the industry average of 33.77%. The stock’s trailing-12-month CAPEX/Sales of 8.21% is 150.8% higher than the industry average of 3.28%.

During the third quarter, which ended September 30, 2023, PRMW’s net revenue grew 6.4% year-over-year to $622 million. The company's adjusted net income and EBITDA rose 46.2% and 20.5% from a year-ago quarter to $52.20 million and $140.90 million, respectively. Also, its adjusted EPS increased 50% from the previous-year quarter to $0.33.

For the fiscal year 2023, the company expects its revenue to be between $2.32 billion and $2.36 billion. For the same year, its adjusted EBITDA is expected to be between $460 million and $480 million, and its adjusted free cash flow is forecasted to be around $160 million.

PRMW’s revenue is expected to grow 8.3% year-over-year to $577.11 million for the fiscal fourth quarter, which ended December 2023. The company surpassed the EPS estimates in three of the trailing four quarters, which is impressive.

PRMW’s shares have surged 7.5% over the past nine months to close the last trading session at $15.34. It gained 3.4% intraday.

PRMW’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.

It has a B grade for Value, Stability, Sentiment, and Quality. Among the 34 stocks in the B-rated Beverages industry, it is ranked #8.

In addition to the POWR Ratings stated above, access PRMW’s Growth and Momentum ratings here.

Stock #2: Embotelladora Andina S.A. (AKO.B)

Headquartered in Santiago, Chile, AKO.B distributes Coca-Cola beverages and a range of other drinks, including alcoholic beverages, energy drinks, and frozen products, through diverse retail channels.

On January 25, 2024, the company paid an interim dividend of CLP32 per Series A share and CLP35.20 per Series B share. The company pays $1.07 annually, which translates to a yield of 7.12% on the prevailing price level. Its four-year average dividend yield is 9.94%. The company has raised its dividend payouts at a CAGR of 6% and 4.8% over the past three and five years, respectively.

AKO.B’s trailing-12-month levered FCF margin of 11.95% is 147.1% higher than the industry average of 4.84%. Its trailing-12-month CAPEX/Sales of 7.36% is 124.7% higher than the industry average of 3.28%.

In the fourth quarter, which ended December 31, 2023, AKO.B reported net sales of CLP773.55 billion ($804.46 million). The company's operating income and adjusted EBITDA grew 13.1% and 7.3% year-over-year to CLP130.14 billion ($135.34 million) and CLP159.07 billion ($165.43 million), respectively. Moreover, its EPS rose 78.8% from a year-ago quarter to CLP85.30.

Street expects AKO.B’s revenue and EPS to grow 3.7% and 18.2% year-over-year to $2.91 billion and $1.38, respectively, for the fiscal year ending December 2024. The company surpassed the revenue and EPS estimates in three of the trailing four quarters.

The stock has gained 10.2% over the past three months to close the last trading session at $15.07. It surged 1% intraday.

AKO.B’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

AKO.B has an A grade for Value and a B for Stability and Quality. Within the same industry, it is ranked #6.

To access additional ratings for AKO.B’s Growth, Momentum, and Sentiment, click 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.

The company pays $3.29 annually, which translates to a yield of 3.27% on the prevailing price level. Its four-year average dividend yield is 4.28%. The company has raised its dividend payouts at a CAGR of 14.7% and 14% over the past three and five years, respectively.

KOF’s trailing-12-month cash from operations of $2.51 billion is 192.9% higher than the industry average of $856.73 million. Also, its trailing-12-month cash per operation of $10.53 is 480.6% higher than the industry average of $1.81.

During the third quarter, which ended September 29, 2023, KOF's net revenue rose 10.1% year-over-year to MXN62.85 billion ($3.68 billion). The company's operating income and consolidated net income grew 15.3% and 22.3% from the prior-year quarter to MXN8.46 billion ($495.48 million) and MXN5.51 billion ($322.88 million), respectively. Moreover, its adjusted EBITDA increased 11.3% year-over-year to MXN11.83 billion ($692.86 million).

Analysts expect KOF’s revenue and EPS to grow 14.9% and 9.6% year-over-year to $14.15 billion and $5.39, respectively, for the fiscal year ended December 2023. The company surpassed the EPS estimates in each of the trailing four quarters.

The stock has gained 42.6% over the past year and 20.9% over the past six months to close the last trading session at $100.67. Also, it gained 2.6% intraday.

KOF’s optimistic fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

KOF has a B grade for Stability, Sentiment, and Quality. Within the same industry, it is ranked #4.

Click here for KOF’s additional Growth, Value, and Momentum ratings.

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KOF shares were trading at $100.30 per share on Friday afternoon, down $0.37 (-0.37%). Year-to-date, KOF has gained 5.98%, versus a 5.58% 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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