4 Stocks to Watch as Health Awareness Drives Soft Drinks Market

Will Kreznick

The soft drinks industry has been witnessing transformed trends more than ever, as health-consciousness, personal well-being, natural ingredients, varied flavors and better experience are changing consumers’ consumption patterns. As consumers emerge from the COVID-19 environment, there has been an increased consciousness for active lifestyle and healthy eating habits, which has […]

The soft drinks industry has been witnessing transformed trends more than ever, as health-consciousness, personal well-being, natural ingredients, varied flavors and better experience are changing consumers’ consumption patterns. As consumers emerge from the COVID-19 environment, there has been an increased consciousness for active lifestyle and healthy eating habits, which has given prominence to natural, plant-based and organic ingredients in food and beverages. Soft drinks, with no preservatives or added colors, low sugar content, and no artificial sweeteners, are the clear choices today. Instead, drinks with plant extracts, natural fruit flavors and not-from-concentrate juices are gaining popularity.

Thanks to the changes, the carbonated soft drinks (CSDs) category has been witnessing accelerated downward trends. The category has been losing share since 2017 mainly on the obesity concerns due to its high sugar and artificial sweetener content. This forced consumers to switch to healthier on-the-go options like juices, tea, coffee, energy drinks, sports drinks and flavored water.

Such trends have kept soft drink companies on the heels in terms of bringing innovations to their products to suit consumers’ needs, while introducing more healthy and naturally prepared drinking options. Industry players are vying to grab the market share in the on-trend categories like tea, coffee, energy drinks, juices and sparkling water. Players are more conscious about the ingredients used in beverages, looking to include additional nutrients in their drinks. Additionally, companies are adopting more transparency toward the disclosure of ingredients to gain consumers’ confidence.

Another trend, which has been more precise in the pandemic era, is the demand for more sustainable packaging, and functional and convenient beverage formats, more so due to the rise of at-home channel sales. While the away-from-home channel is gradually opening up, industry experts believe the at-home consumption trends will continue to have a share in overall sales of beverage companies.

Moreover, beverage companies are expected to witness incremental sales in the coming days due to the reopening of the convenience and gas, and away-from-home channels like restaurants, sporting events and movie theaters. The rapid inoculation drive has led to the lifting of restrictions on movement in many places, which is likely to bring normalcy in the away-from-home channel. This is anticipated to be a boon for soft drink makers as the away-from-home channel accounts for the majority of their revenues.

All said, let’s take a look at a few Zacks Beverages – Soft Drinks industry stocks, which appear well-positioned on the back of innovation efforts and the launch of healthier drinks to keep pace with changing consumption trends.

4 Soft Drink Stocks to Watch

The Coca-Cola Company KO: The global beverage behemoth has been benefiting from the effective execution of strategies to evolve as a consumer-centric total beverage company. In the evolving industry, the company is poised to gain from strong volumes for its trademark Coca-Cola, sparkling flavors, and the nutrition, juice, dairy and plant-based beverage category. Additionally, the company remains committed to restructuring its growth portfolio by actively transitioning brands to powerful trademarks. Also, Coca-Cola is speeding up investments to expand its presence in the channel more than the pre-crisis levels. It is also consistently strengthening consumer connections and further piloting various digital-enabled initiatives through fulfillment methods to capture the online demand.

Coca-Cola has a trailing four-quarter earnings surprise of 12.9%, on average. Moreover, the Zacks Consensus Estimate for its 2021 sales and earnings suggests growth of 12.5% and 12.3%, respectively, from the year-ago period’s reported figures. The consensus mark for 2021 earnings has increased 0.5% in the past 30 days. Moreover, this Zacks Rank #3 (Hold) stock has rallied 17.5% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PepsiCo, Inc. PEP: The leading global food and beverage company has a competitive edge over its competitors as it sells both snacks and beverages, which are complementary food categories. It has been gaining from resilience and strength in its global snacks and foods business as well as growth in the beverage category. We note that PepsiCo’s beverage business is impressive. Brands like bubbly, Starbucks, Mountain Dew, Gatorade and Pepsi reported strong growth in first-quarter 2021. Moreover, the market share trend for the liquid refreshment beverage category has been improving, with share gains in carbonated soft drinks, teas, juices and sparkling water. The company has been witnessing robust trends in the energy drink category, with the launch of Mountain Dew Rise Energy and efforts to revitalize the Rockstar products.

The Zacks Consensus Estimate for PepsiCo’s 2021 sales and earnings suggests growth of 7.2% and 9.6%, respectively, from the year-ago period’s reported figures. The consensus mark for its 2021 earnings has been unchanged in the past 30 days. Moreover, the Zacks Rank #3 company has a trailing four-quarter earnings surprise of 6.8%, on average. Shares of PepsiCo have gained 10.9% in a year.

 

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Keurig Dr Pepper, Inc. KDP: Keurig Dr Pepper has been benefiting from solid market share gains and growth across all segments, including increased opportunities in the Packaged Beverages and Coffee Systems businesses. It has been witnessing market share gains across several major categories, including CSDs, teas, juice drinks, apple juice, vegetable juice, coconut water, mixers and premium unflavored water. It is also seeing a gradual recovery in restaurant traffic, which is supporting the Beverage Concentrate segment. The company expects increased household penetration across both hot and cold beverage portfolios to continue. Moreover, its market share growth is being supported by efficient marketing and product innovation strategies. Also, investments to boost distribution platforms and e-commerce operations bode well.

The Zacks Rank #3 company has a trailing four-quarter earnings surprise of 3.1%, on average. The Zacks Consensus Estimate for Keurig Dr Pepper’s 2021 sales and earnings suggests growth of 6% and 14.3%, respectively, from the year-ago period’s reported figures. The consensus mark for its 2021 earnings has been unchanged in the past 30 days. Shares of the company have risen 18.2% in the past year.

Fomento Economico Mexicano S.A.B. de C.V. FMX, alias FEMSA: FEMSA has exposure in various industries, including beverage, beer and retail, which gives it an edge over its competitors. The company participates in the beverage industry through Coca-Cola FEMSA, which is the world’s largest franchise bottler for Coca-Cola products. The company continues to focus on offering customers more options to make contactless purchases by intensifying digital and technology-driven initiatives across operations. The company’s Coca-Cola FEMSA is leading the way with its omni-channel business, while FEMSA Comercio is progressing with the adoption of digital initiatives. Within its OXXO store chains, FEMSA is on track with its investment in digital offerings, loyalty programs and fintech platforms to evolve stronger after the pandemic and over the long term.

The Zacks Consensus Estimate for the company’s 2021 sales suggests growth of 11% from the year-ago period, while that for earnings indicates substantial growth. The consensus mark for its 2021 earnings has been moved up by 0.3% in the past seven days. Shares of the Zacks Rank #3 company have risen 26.1% in the past year.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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