Dow component Coca-Cola (NYSE: KO) and PepsiCo (NYSE: PEP) are easily the most recognizable beverage stocks to investors. Market values of $178.6 billion and $14.7 billion (at Tuesday’s close) confirm as much, but there is more to investing beverage stocks than these two goliaths. Exchange traded funds can help with that objective.
“In a recently-published Beverages Industry Survey, S&P Capital IQ Equity Analyst Joseph Agnese wrote that volume growth trends directly impacted the industry’s profitability, with earnings per share (EPS) growth for the beverages industry over the past two calendar years averaging only 2.6% and significantly underperforming the 6.9% increase for the consumer staples sector. According to Agnese, volumes have weakened under increased consumer health concerns regarding the healthiness of sugary drinks. Meanwhile, the consolidation of lower-margin bottling operations and rising commodity costs exerted increased pressure on margins,” said S&P Capital IQ in a new research note.
Coca-Cola and Pepsi combine for almost 13.6% of the Consumer Staples Select Sector SPDR (NYSEArca: XLP). However, XLP, the largest consumer staples ETF has exposure to other beverage names as well as the sub-sector is the ETF’s second-largest at 19.9%. [Sumptuous Staples ETFs]
“S&P Capital IQ expects KO to report EPS of $2.03 in 2015, down slightly from 2014 even with the benefit of share repurchases, as revenues decline modestly and the EBITDA margin contracts. Meanwhile, PEP is expected to generate $4.70 in EPS in 2015, up from $4.63 in 2014, as cost savings counterbalances a sales decline hurt by unfavorable currency exchange,” said S&P Capital IQ.
The research firm has three-star ratings on Coca-Cola and Pepsi, but has more bullish four-star ratings on Monster (NasdaqGS: MSNT) and Dr. Pepper Snapple (NYSE: DPS). Coca-Cola owns a stake in Monster. Monster and Dr. Pepper Snapple combine for just over 2% of XLP’s weight.