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5 Soft Drink Stocks Set to Sway in a Prospering Industry

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The Zacks Beverages – Soft Drinks 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. Health-consciousness, sustainability and innovation are key trends driving the industry. The industry participants 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) , Keurig Dr Pepper (KDP - Free Report) and Vita Coco Company (COCO - 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 #31, which places it in the top 12% 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 top 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 0.3%.

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 lost 7.2% compared with the sector’s decline of 12.2%. Meanwhile, the S&P 500 has rallied 24.2%.

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 20.08X compared with the S&P 500’s 20.88X and the sector’s 16.74X.

Over the last five years, the industry traded as high as 23.97X and as low as 19.51X, 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 another stock has a Zacks Rank #2 (Buy). We have also highlighted three 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.

Vita Coco: The company is a pioneer in the functional beverage category. This New York-based company has been benefiting from its focus and investment to expand consumption occasions of coconut water. This has been contributing to strong volume growth for the category and its flagship Vita Coco Coconut Water brand. The company’s focus on growing the coconut water category resulted in its overall sales growth witnessing a 15% CAGR for the last four years. The company looks well-poised for growth, driven by its ability to drive brand volume growth via strong retail execution and creative marketing programs. Additionally, COCO’s strategies position it to improve profitability and cash generation in the long term.

Vita Coco’s shares have risen 11.7% in the past year. The Zacks Consensus Estimate for COCO’s 2024 sales and earnings indicates year-over-year increases of 1.8% and 24.3%, respectively. The consensus mark for earnings has been unchanged in the past 30 days. The company currently sports a Zacks Rank #1.

Price and Consensus: COCO

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 at-home and away-from-home channels. The Zacks Consensus Estimate for KO’s 2024 sales and earnings suggests growth of 0.2% and 4.5%, respectively. The consensus mark for earnings has been unchanged in the past 30 days. The company’s shares have declined 8.4% in the past year. The company currently has a Zacks Rank #2.

Price and Consensus: KO

PepsiCo: Resilience and strength in the global beverage and convenience food businesses have been aiding 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 9.5% in the past year. The Zacks Consensus Estimate for PEP’s 2024 sales and earnings suggests year-over-year growth of 3.5% and 7%, respectively. The consensus estimate for this Zacks Rank #3 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 2.3% in the past year. The Zacks Consensus Estimate for MNST’s 2024 sales and earnings indicates year-over-year increases of 11.7% and 16.8%, respectively. The consensus mark for earnings has been unchanged in the past 30 days.

Price and Consensus: MNST

Keurig Dr Pepper: The beverage and coffee company in the United States and Canada is poised to gain from continued momentum in the Refreshment Beverages segment. Recent innovations, effective in-market execution, and contributions from its sales and distribution partnership for C4 Energy bode well. The company has been witnessing a strong in-market performance in the Liquid Refreshment Beverages category.

The Zacks Consensus Estimate for KDP’s 2024 sales and earnings suggests growth of 3.7% and 6.7%, respectively, from the year-ago reported figures. The consensus mark for earnings has been unchanged in the past 30 days. The company’s shares have declined 14.1% in the past year. It currently has a Zacks Rank #3.

Price and Consensus: KDP

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