Inflation slowed for the sixth consecutive month in December, signaling that the Fed’s seven interest rate hikes last year had a decelerating effect on inflation. However, the U.S. jobless claims for the week ended January 14, 2023, fell to their lowest level in more than three months, signaling continued tightness in the labor market.

Minutes from the Fed’s policy meeting in December show that the central bank remains committed to bringing inflation down to its 2% target. So, a pause in interest rate hikes is highly unlikely this year, leading many analysts to fear that there could be a recession this year.

Amid the uncertain macroeconomic conditions, companies from the beverage industry could be solid investments as these names remain well-positioned for growth thanks to the stable demand the industry faces regardless of economic turmoil. The sector also comprises well-established companies, allowing the industry to generate steady profits.

Beverage companies are coming up with non-alcoholic and healthy beverages, which are expected to help drive further revenues and cater to health-conscious customers. The global functional beverages market is expected to reach $175.80 billion by 2027, growing at a CAGR of 7.1%.

Amid this backdrop, it could be wise for investors to add fundamentally strong beverage stocks The Coca-Cola Company (KO), PepsiCo, Inc. (PEP), and Primo Water Corporation (PRMW) to their portfolios.

The Coca-Cola Company (KO) 

The global beverage company, KO, manufactures, markets, and sells various non-alcoholic beverages. The company provides sparkling soft drinks; flavored and enhanced water and sports drinks; juice, dairy, and plant-based beverages; tea and coffee; and energy drinks.

KO paid a dividend of 44 cents to shareholders on December 15, 2022. It has increased its dividend for 61 consecutive years. Its annual dividend of $1.76 yields 2.91% on the current share price. The company’s dividend payouts have increased at a 3.2% CAGR over the past three years and a 3.5% CAGR over the past five years.

In terms of the trailing-12-month gross profit margin, KO’s 58.49% is 86.5% higher than the 31.37% industry average. Likewise, its 31.96% trailing-12-month EBITDA margin is 187% higher than the industry average of 11.14%. Furthermore, the stock’s 3.34% trailing-12-month Capex/Sales is 4.9% higher than the industry average of 3.19%.

KO’s non-GAAP net operating revenues increased 10% year-over-year to $11.06 billion for the third quarter that ended September 30, 2022. Its non-GAAP gross profit increased 6.5% year-over-year to $6.54 billion.

The company’s non-GAAP net income increased 6.7% year-over-year to $3.01 billion. In addition, its non-GAAP EPS came in at $0.69, representing a 6.2% increase from the prior-year quarter. 

Analysts expect KO’s revenue for the quarter that ended December 31, 2022, to increase 4.4% year-over-year to $9.89 billion. Its EPS for the fiscal year 2022 is expected to increase 7.3% year-over-year to $2.49.

The company has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 5.2% to close the last trading session at $60.55.  

KO’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. 

Within the A-rated Beverages industry, it is ranked #16 out of 36 stocks. The company has a B grade for Stability, Sentiment, and Quality.

Click here to see the additional POWR Ratings of KO for Growth, Value, and Momentum.

PepsiCo, Inc. (PEP)

PEP manufactures, markets, distributes, and sells various beverages and convenient foods worldwide. The company operates through seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, and South Asia; and Asia Pacific, Australia and New Zealand and China Region. 

PEP paid a dividend of $1.15 to shareholders on January 6, 2023. It has increased its dividend for 51 consecutive years. Its annual dividend of $4.60 yields 2.69% on the current share price. The company’s dividend payouts have increased at a 6.1% CAGR over the past three years and a 7.4% CAGR over the past five years.

In terms of the trailing-12-month gross profit margin, PEP’s 53.24% is 69.7% higher than the 31.37% industry average. Likewise, its 18.12% trailing-12-month EBITDA margin is 62.7% higher than the industry average of 11.14%. Furthermore, the stock’s 5.86% trailing-12-month Capex/Sales is 84.1% higher than the industry average of 3.19%.

On December 5, 2022, PEP announced a new packaging goal to double the scale of reusable packing models from 10% to 20% by 2030. This is expected to help the company achieve its sustainability goals.

PEP’s net revenue for the third quarter that ended September 3, 2022, increased 8.8% year-over-year to $21.97 billion. The company’s non-GAAP operating profit increased 10.9% year-over-year to $3.60 billion, while non-GAAP net income attributable to PEP increased 10% year-over-year to $2.73 billion. Also, its adjusted EPS increased 10% from the prior-year period to $1.97. 

Analysts expect PEP’s EPS and revenue for the quarter ending December 2022 to increase 7.7% and 6.1% year-over-year to $1.65 and $26.80 billion, respectively. The company has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.

The stock has gained marginally over the past six months to close the last trading session at $170.69.  

PEP’s strong 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.

It is ranked #7 in the same industry. It has an A grade for Quality and a B for Growth, Stability, and Sentiment. We have also given PEP grades for Value and Momentum. Get all PEP ratings here.

Primo Water Corporation (PRMW)

PRMW provides pure-play water solutions for residential and commercial customers. It offers bottled water, water dispensers, purified bottled water, self-service refill drinking water, and premium spring and mineral water, among other products.

PRMW paid a dividend of $0.07 to shareholders on December 9, 2022. Its annual dividend of $0.28 yields 1.82% on the current share price. The company’s dividend payouts have increased at a 5.3% CAGR over the past three years and a 3.1% CAGR over the past five years.

In terms of the trailing-12-month gross profit margin, PRMW’s 57.61% is 83.6% higher than the 31.37% industry average. Likewise, its 17.27% trailing-12-month EBITDA margin is 55.1% higher than the industry average of 11.14%. Furthermore, the stock’s 9.45% trailing-12-month Capex/Sales is 196.6% higher than the industry average of 3.19%.

On October 12, 2022, PRMW announced that its subsidiary Primo Water North America (PWNA) had acquired the bottled water company Crystal Spring Water Company. The acquisition is expected to add approximately 2,500 customers to PWNA, strengthening its footprint in the Northeast region.

PRMW’s net revenue for the third quarter that ended October 1, 2022, increased 6.1% year-over-year to $584.60 million. The company’s gross profit increased 12.9% year-over-year to $348.20 million. Its adjusted EBITDA increased 10.4% from the year-ago value to $116.90 million.      

PRMW’s EPS for the quarter ending March 31, 2023, is expected to increase 2.6% year-over-year to $0.09. Its revenue for the quarter that ended December 31, 2022, is expected to increase 5.6% year-over-year to $547.03 million. The stock has gained 19.3% over the past six months to close the last trading session at $15.35.

PRMW’s POWR Ratings reflect this positive outlook. PRMW has an overall rating of B, which translates to Buy in our proprietary rating system. It is ranked #10 in the same industry. It has an A grade for Growth and a B for Quality.  

To see PRMW’s ratings for Value, Momentum, Stability, and Sentiment, click here.

KO shares were trading at $60.45 per share on Wednesday afternoon, down $0.10 (-0.17%). Year-to-date, KO has declined -4.97%, versus a 4.21% rise in the benchmark S&P 500 index during the same period.

Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.

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