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5 Soft Drink Stocks to Watch Amid Favorable Industry Trends
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The Zacks Beverages – Soft Drinks industry has been undergoing a transformative period, shaped by health-conscious choices, sustainability and the need for innovation. The industry participants are well-placed for market share growth over the long term through innovation, adaptability and a focus on consumer well-being. Accelerating digital investments toward e-commerce and direct-to-consumer channels bode well. Companies are expected to gain from the expansion into newer categories and adjacent categories, including capturing market share in the Ready-to-Drink (“RTD”) alcoholic beverage category through collaborations. Players like The Coca-Cola Company (KO - Free Report) , PepsiCo Inc. (PEP - Free Report) , Monster Beverage Corporation (MNST - Free Report) , Coca-Cola FEMSA, S.A.B. de C.V. (KOF - Free Report) and Dutch Bros (BROS - Free Report) are poised for growth on these actions.
However, players in the industry have been witnessing continued pressure from cost inflation, including transportation and commodity costs, particularly steel and aluminum. Industry players’ actions, including price increases, reducing reliance on imported cans and moving production closer to markets, look promising to combat these headwinds. Elevated operating expenses related to increased spending on marketing and advertising to capture a share are likely to strain margins in the near term.
About the Industry
The Zacks Beverages - Soft drinks industry comprises companies that manufacture, source, develop, market and sell non-alcoholic beverages. Soft drinks mainly include sparkling drinks, natural juices, enhanced water, sports and energy drinks, dairy, and RTD tea and coffee beverages. Some industry players like PepsiCo produce and sell handy food with flavored snacks, complementing their beverage portfolio. The companies sell products through a network of wholesalers and retailers, including supermarkets, department stores, mass merchandisers, club stores and other retail outlets. Some also offer products via company-owned or controlled bottling, independent bottling partners and partner brand owners.
What's Shaping the Future of the Beverages - Soft Drinks Industry?
Innovation & Digital Growth: The soft drinks industry is witnessing increased assortments of flavors and formats, driven by a desire for unique and exotic taste experiences. It is poised to gain from innovations and accelerating digital investments. The companies have been optimizing their portfolios, and focusing on core brands and investments in innovation to meet the evolving needs of consumers. The players have been committed to product launches and innovation. Expansion into newer markets has been a critical focus for soft drink makers to boost market share. The companies are expected to reap the benefits of digital and technology-driven investments based on the shifting consumer preference for online shopping. Companies in the industry have been accelerating investments to build strong digital capabilities by piloting numerous digital-enabled fulfillment options. They have been expanding digital offerings and investing in loyalty programs to capture online demand. These investments are likely to position soft drink companies for long-term growth.
Evolving Trends: One of the notable trends in the U.S. beverage soft drinks industry is the increasing demand for healthier options. Consumers are becoming more health-conscious, driving a shift toward beverages with natural ingredients, lower sugar content and functional benefits, while staying excited for varied flavors and better taste experiences. Plant-based beverages have gained significant traction as consumers seek alternatives to traditional soft drinks. Plant-based ingredients, such as botanical extracts and non-dairy milk alternatives, are becoming popular choices for those looking to reduce their environmental impacts and make healthier choices. Additionally, functional beverages that offer specific health benefits, such as enhanced hydration, energy boosters, and mood enhancers, are carving out a niche in the market. Companies in the industry are expected to benefit from the expansion into newer and adjacent categories, including capturing market share in the fast-growing RTD alcoholic beverage category through collaborations. RTD has emerged as the fastest-growing category since 2018. The industry players are also exploring CBD-infused drinks, which have been gaining popularity lately.
Raw Material Cost Inflation and Supply Constraints: The beverage industry has been troubled by higher costs, including rising commodity input costs and transportation expenses. Raw material cost inflation, particularly steel and aluminum, has increased packaging costs. The ongoing supply constraints in the aluminum can industry have been other headwinds. The companies are also witnessing delays in procuring certain ingredients, domestically and internationally, leading to shortages of some goods. The industry players have been facing freight inefficiencies, and significant increases in domestic and international freight costs. Logistic issues, higher input costs and freight inefficiencies have led to higher sales and operating expenses, impacting the gross and operating margins. Most players expect commodity cost inflation and higher transportation costs to persist in the near term. Price increases to overcome the ongoing cost pressures have significantly increased sales in recent quarters.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Beverages - Soft Drinks industry is housed within the broader Consumer Staples sector. It currently carries a Zacks Industry Rank #33, which places it in the top 13% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries results from a positive aggregate earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. In the past year, the industry’s 2024 earnings estimates have risen 18.1%.
Before we present a few stocks that you may want to consider for your portfolio, let’s look at the industry’s recent stock-market performance and valuation picture.
Industry vs. Broader Market
The Zacks Beverages – Soft Drinks industry has outperformed the Consumer Staples sector in a year. However, it has underperformed the S&P 500 Index.
The stocks in the industry have collectively gained 4.8% against the sector’s decline of 7.4%. Meanwhile, the S&P 500 has rallied 20.9%.
One-Year Price Performance
Industry's Current Valuation
On the forward 12-month price-to-earnings (P/E) ratio basis, commonly used for valuing soft drink stocks, the industry is currently trading at 19.29X compared with the S&P 500’s 20.2X and the sector’s 17.05X.
Over the last five years, the industry traded as high as 23.97X and as low as 19.29X, with a median of 22.29X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
5 Soft Drink Stocks to Watch
One stock in the Zacks Beverages – Soft Drinks industry currently sports a Zacks Rank #1 (Strong Buy), whereas two stocks have Zacks Rank #2 (Buy). We have also highlighted two stocks with a Zacks Rank #3 (Hold) from the same industry. You can see the complete list of today’s Zacks #1 Rank stocks here.
Let’s take a look.
Coca-Cola FEMSA: It is the largest Coca-Cola franchise bottler and is a subsidiary of Fomento Economico Mexicano. This Mexico-based company remains committed to leveraging its revenue management capabilities, working intensively to provide affordability to consumers, and offering the right products at the right prices. The company is likely to benefit from the progress on its strategic goals, including the rollout of its digital omni-channel platform. Volume growth, pricing initiatives and favorable price-mix effects have been driving Coca-Cola FEMSA’s revenues.
Coca-Cola FEMSA’s shares have rallied 19.6% in the past year. The Zacks Consensus Estimate for KOF’s 2024 sales and earnings indicates year-over-year increases of 6.2% and 10.1%, respectively. The consensus mark for earnings has moved up 1.3% in the past 30 days. The company currently sports a Zacks Rank #1.
Price and Consensus: KOF
Coca-Cola: The soft drink behemoth is poised to gain from strategic transformation and ongoing worldwide recovery. The streamlining of its portfolio and accelerating investments to expand the digital presence position the company for growth in the long term. It has been witnessing a splurge in e-commerce, with the growth rate of the channel doubling in many countries. It is strengthening consumer connections and piloting numerous digital-enabled initiatives through fulfillment methods to capture the online demand for at-home consumption.
Coca-Cola is diversifying its portfolio to tap into the rapidly growing RTD category. The company has been gaining from the elasticity in the marketplace, an improved price/mix, and concentrated sales and underlying share gains in both at-home and away-from-home channels. The Zacks Consensus Estimate for KO’s 2024 sales and earnings suggests growth of 3.3% and 4.6%, respectively. The consensus mark for earnings has been unchanged in the past 30 days. The company’s shares have declined 1.7% in the past year. The stock currently has a Zacks Rank #2.
Price and Consensus: KO
PepsiCo: Resilience and strength in the global beverage and convenience food businesses have aided the company’s performance. It expects to benefit from delivering convenience, variety and value proposition to customers through its brands. PEP is poised to benefit from investments in brands, go-to-market systems, supply chain, manufacturing capacity and digital capabilities to build competitive advantages. Its cost-management and revenue-management initiatives bode well amid the ongoing inflationary pressures.
In the beverage business, PepsiCo expects strong growth and market share gains from the liquid refreshment beverage category, with share gains in the carbonated soft drinks, RTD Tea and water categories. The stock of this Purchase, NY-based leading soft-drink company has lost 3.3% in the past year. The Zacks Consensus Estimate for PEP’s 2024 sales and earnings suggests year over year growth of 4.6% and 7.5%, respectively. The consensus estimate for this Zacks Rank #2 company’s 2024 EPS has been unchanged in the past 30 days.
Price and Consensus: PEP
Monster Beverage: The Corona, CA-based company markets and distributes energy drinks and alternative beverages. MNST has been experiencing continued strength in its energy drinks category, which is driving its performance. The company offers a wide range of energy drink brands, such as Monster Energy, Java Monster, Cafe Monster, Espresso Monster, Monster Energy Mule, Juice Monster Pipeline Punch, Juice Monster Pacific Punch, Juice Monster Mango Loco, Monster Ultra Paradise and Monster Hydra Sport. Product innovation also plays a significant role in the company's success. Monster Beverage is implementing pricing actions to overcome the ongoing cost pressure.
Despite the ongoing supply-chain challenges, Monster Beverage continues to stand by its strategy to ensure product availability and solidify continued long-term growth of its brands. Management is optimistic about strength in the global energy drinks category. It remains poised to gain from growth in the Monster Energy family of brands, and strength in Strategic and Affordable energy brands. Shares of this Zacks Rank #3 company have risen 9.3% in the past year. The Zacks Consensus Estimate for MNST’s 2024 sales and earnings indicates year-over-year increases of 11.1% and 15.5%, respectively. The consensus mark for earnings has been unchanged in the past 30 days.
Price and Consensus: MNST
Dutch Bros: The company is a high-growth operator and franchisor of drive-thru shops. It is focused on serving high-quality, hand-crafted beverages with unparalleled speed and superior service. BROS is poised for growth, driven by its long-term new shop growth plan. It has been on track with the opening of new locations at an accelerated pace and has been well-received by customers. The company expects meaningful expansion in shop profitability, and leverage in general and administrative costs as it continues to scale its business.
Dutch Bros shares have declined 20.3% in the past year. The Zacks Consensus Estimate for BROS’ 2024 sales and earnings indicates year-over-year increases of 27.3% and 29.6%, respectively. The consensus mark for earnings has moved down by a penny in the past seven days. The company currently has a Zacks Rank #3.
Price and Consensus: BROS
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5 Soft Drink Stocks to Watch Amid Favorable Industry Trends
The Zacks Beverages – Soft Drinks industry has been undergoing a transformative period, shaped by health-conscious choices, sustainability and the need for innovation. The industry participants are well-placed for market share growth over the long term through innovation, adaptability and a focus on consumer well-being. Accelerating digital investments toward e-commerce and direct-to-consumer channels bode well. Companies are expected to gain from the expansion into newer categories and adjacent categories, including capturing market share in the Ready-to-Drink (“RTD”) alcoholic beverage category through collaborations. Players like The Coca-Cola Company (KO - Free Report) , PepsiCo Inc. (PEP - Free Report) , Monster Beverage Corporation (MNST - Free Report) , Coca-Cola FEMSA, S.A.B. de C.V. (KOF - Free Report) and Dutch Bros (BROS - Free Report) are poised for growth on these actions.
However, players in the industry have been witnessing continued pressure from cost inflation, including transportation and commodity costs, particularly steel and aluminum. Industry players’ actions, including price increases, reducing reliance on imported cans and moving production closer to markets, look promising to combat these headwinds. Elevated operating expenses related to increased spending on marketing and advertising to capture a share are likely to strain margins in the near term.
About the Industry
The Zacks Beverages - Soft drinks industry comprises companies that manufacture, source, develop, market and sell non-alcoholic beverages. Soft drinks mainly include sparkling drinks, natural juices, enhanced water, sports and energy drinks, dairy, and RTD tea and coffee beverages. Some industry players like PepsiCo produce and sell handy food with flavored snacks, complementing their beverage portfolio. The companies sell products through a network of wholesalers and retailers, including supermarkets, department stores, mass merchandisers, club stores and other retail outlets. Some also offer products via company-owned or controlled bottling, independent bottling partners and partner brand owners.
What's Shaping the Future of the Beverages - Soft Drinks Industry?
Innovation & Digital Growth: The soft drinks industry is witnessing increased assortments of flavors and formats, driven by a desire for unique and exotic taste experiences. It is poised to gain from innovations and accelerating digital investments. The companies have been optimizing their portfolios, and focusing on core brands and investments in innovation to meet the evolving needs of consumers. The players have been committed to product launches and innovation. Expansion into newer markets has been a critical focus for soft drink makers to boost market share. The companies are expected to reap the benefits of digital and technology-driven investments based on the shifting consumer preference for online shopping. Companies in the industry have been accelerating investments to build strong digital capabilities by piloting numerous digital-enabled fulfillment options. They have been expanding digital offerings and investing in loyalty programs to capture online demand. These investments are likely to position soft drink companies for long-term growth.
Evolving Trends: One of the notable trends in the U.S. beverage soft drinks industry is the increasing demand for healthier options. Consumers are becoming more health-conscious, driving a shift toward beverages with natural ingredients, lower sugar content and functional benefits, while staying excited for varied flavors and better taste experiences. Plant-based beverages have gained significant traction as consumers seek alternatives to traditional soft drinks. Plant-based ingredients, such as botanical extracts and non-dairy milk alternatives, are becoming popular choices for those looking to reduce their environmental impacts and make healthier choices. Additionally, functional beverages that offer specific health benefits, such as enhanced hydration, energy boosters, and mood enhancers, are carving out a niche in the market. Companies in the industry are expected to benefit from the expansion into newer and adjacent categories, including capturing market share in the fast-growing RTD alcoholic beverage category through collaborations. RTD has emerged as the fastest-growing category since 2018. The industry players are also exploring CBD-infused drinks, which have been gaining popularity lately.
Raw Material Cost Inflation and Supply Constraints: The beverage industry has been troubled by higher costs, including rising commodity input costs and transportation expenses. Raw material cost inflation, particularly steel and aluminum, has increased packaging costs. The ongoing supply constraints in the aluminum can industry have been other headwinds. The companies are also witnessing delays in procuring certain ingredients, domestically and internationally, leading to shortages of some goods. The industry players have been facing freight inefficiencies, and significant increases in domestic and international freight costs. Logistic issues, higher input costs and freight inefficiencies have led to higher sales and operating expenses, impacting the gross and operating margins. Most players expect commodity cost inflation and higher transportation costs to persist in the near term. Price increases to overcome the ongoing cost pressures have significantly increased sales in recent quarters.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Beverages - Soft Drinks industry is housed within the broader Consumer Staples sector. It currently carries a Zacks Industry Rank #33, which places it in the top 13% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries results from a positive aggregate earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. In the past year, the industry’s 2024 earnings estimates have risen 18.1%.
Before we present a few stocks that you may want to consider for your portfolio, let’s look at the industry’s recent stock-market performance and valuation picture.
Industry vs. Broader Market
The Zacks Beverages – Soft Drinks industry has outperformed the Consumer Staples sector in a year. However, it has underperformed the S&P 500 Index.
The stocks in the industry have collectively gained 4.8% against the sector’s decline of 7.4%. Meanwhile, the S&P 500 has rallied 20.9%.
One-Year Price Performance
Industry's Current Valuation
On the forward 12-month price-to-earnings (P/E) ratio basis, commonly used for valuing soft drink stocks, the industry is currently trading at 19.29X compared with the S&P 500’s 20.2X and the sector’s 17.05X.
Over the last five years, the industry traded as high as 23.97X and as low as 19.29X, with a median of 22.29X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
5 Soft Drink Stocks to Watch
One stock in the Zacks Beverages – Soft Drinks industry currently sports a Zacks Rank #1 (Strong Buy), whereas two stocks have Zacks Rank #2 (Buy). We have also highlighted two stocks with a Zacks Rank #3 (Hold) from the same industry. You can see the complete list of today’s Zacks #1 Rank stocks here.
Let’s take a look.
Coca-Cola FEMSA: It is the largest Coca-Cola franchise bottler and is a subsidiary of Fomento Economico Mexicano. This Mexico-based company remains committed to leveraging its revenue management capabilities, working intensively to provide affordability to consumers, and offering the right products at the right prices. The company is likely to benefit from the progress on its strategic goals, including the rollout of its digital omni-channel platform. Volume growth, pricing initiatives and favorable price-mix effects have been driving Coca-Cola FEMSA’s revenues.
Coca-Cola FEMSA’s shares have rallied 19.6% in the past year. The Zacks Consensus Estimate for KOF’s 2024 sales and earnings indicates year-over-year increases of 6.2% and 10.1%, respectively. The consensus mark for earnings has moved up 1.3% in the past 30 days. The company currently sports a Zacks Rank #1.
Price and Consensus: KOF
Coca-Cola: The soft drink behemoth is poised to gain from strategic transformation and ongoing worldwide recovery. The streamlining of its portfolio and accelerating investments to expand the digital presence position the company for growth in the long term. It has been witnessing a splurge in e-commerce, with the growth rate of the channel doubling in many countries. It is strengthening consumer connections and piloting numerous digital-enabled initiatives through fulfillment methods to capture the online demand for at-home consumption.
Coca-Cola is diversifying its portfolio to tap into the rapidly growing RTD category. The company has been gaining from the elasticity in the marketplace, an improved price/mix, and concentrated sales and underlying share gains in both at-home and away-from-home channels. The Zacks Consensus Estimate for KO’s 2024 sales and earnings suggests growth of 3.3% and 4.6%, respectively. The consensus mark for earnings has been unchanged in the past 30 days. The company’s shares have declined 1.7% in the past year. The stock currently has a Zacks Rank #2.
Price and Consensus: KO
PepsiCo: Resilience and strength in the global beverage and convenience food businesses have aided the company’s performance. It expects to benefit from delivering convenience, variety and value proposition to customers through its brands. PEP is poised to benefit from investments in brands, go-to-market systems, supply chain, manufacturing capacity and digital capabilities to build competitive advantages. Its cost-management and revenue-management initiatives bode well amid the ongoing inflationary pressures.
In the beverage business, PepsiCo expects strong growth and market share gains from the liquid refreshment beverage category, with share gains in the carbonated soft drinks, RTD Tea and water categories. The stock of this Purchase, NY-based leading soft-drink company has lost 3.3% in the past year. The Zacks Consensus Estimate for PEP’s 2024 sales and earnings suggests year over year growth of 4.6% and 7.5%, respectively. The consensus estimate for this Zacks Rank #2 company’s 2024 EPS has been unchanged in the past 30 days.
Price and Consensus: PEP
Monster Beverage: The Corona, CA-based company markets and distributes energy drinks and alternative beverages. MNST has been experiencing continued strength in its energy drinks category, which is driving its performance. The company offers a wide range of energy drink brands, such as Monster Energy, Java Monster, Cafe Monster, Espresso Monster, Monster Energy Mule, Juice Monster Pipeline Punch, Juice Monster Pacific Punch, Juice Monster Mango Loco, Monster Ultra Paradise and Monster Hydra Sport. Product innovation also plays a significant role in the company's success. Monster Beverage is implementing pricing actions to overcome the ongoing cost pressure.
Despite the ongoing supply-chain challenges, Monster Beverage continues to stand by its strategy to ensure product availability and solidify continued long-term growth of its brands. Management is optimistic about strength in the global energy drinks category. It remains poised to gain from growth in the Monster Energy family of brands, and strength in Strategic and Affordable energy brands. Shares of this Zacks Rank #3 company have risen 9.3% in the past year. The Zacks Consensus Estimate for MNST’s 2024 sales and earnings indicates year-over-year increases of 11.1% and 15.5%, respectively. The consensus mark for earnings has been unchanged in the past 30 days.
Price and Consensus: MNST
Dutch Bros: The company is a high-growth operator and franchisor of drive-thru shops. It is focused on serving high-quality, hand-crafted beverages with unparalleled speed and superior service. BROS is poised for growth, driven by its long-term new shop growth plan. It has been on track with the opening of new locations at an accelerated pace and has been well-received by customers. The company expects meaningful expansion in shop profitability, and leverage in general and administrative costs as it continues to scale its business.
Dutch Bros shares have declined 20.3% in the past year. The Zacks Consensus Estimate for BROS’ 2024 sales and earnings indicates year-over-year increases of 27.3% and 29.6%, respectively. The consensus mark for earnings has moved down by a penny in the past seven days. The company currently has a Zacks Rank #3.
Price and Consensus: BROS