Beverage stocks have been hot this year, with gains ranging from the high-single-digits to roughly 50% for names like Starbucks. While the gains are not distributed evenly, the leaders are expected to continue leading the market in 2023 and beyond. Starbucks (NASDAQ: SBUX) is only 1 name on the list of winners; PepsiCo (NASDAQ: PEP) and Monster Beverage (NASDAQ: MNST) are 2 others, but all can potentially deliver double-digit gains or more over the next 12 months.
PepsiCo: Not A Pure-Play But Purely The Leader
PepsiCo is not a pure play on beverages like some of its competitors, but it is purely the leader in the consumer staples market. PepsiCo has leveraged its name and brand into a multidecade growth story that has yet to play out. The company’s core business is PepsiCo North America, compounded and complimented by breakfast and snacks businesses and an international growth agenda.
The latest earnings report is a testament to the company’s management and strategy, delivering another quarter of double-digit growth. The growth is underpinned by solid product demand amplified by the pricing power. Pricing is up low-double-digits compared to last year, aiding the margin and top-line results.
The takeaways from the Q2 report include 10% top-line growth that beat the Marketbeat.com consensus figures and led to increased guidance. The guidance was raised to a range above the prior high-end, with the mid-point well above the consensus.
The stock price corrected due to the news but not badly.
The move was a knee-jerk reaction to some news that could have been better; the takeaway from the analysts' activity is that the market is fairly priced at the current level but will move higher, possibly above $200, by the following earnings report.
Starbucks Recovery Is On Track
Starbucks' share price recovery hit a top with the transition to new CEO Laxman Narasimhan. Narasimhan is, coincidentally, a former exec of PepsiCo and responsible in part for that company’s current success. His actions helped usher Starbucks to record revenue levels in 2023, which will continue.
The Q2 results were mixed regarding the analysts' estimates and led to some consolidative price action but are ultimately favorable to higher share prices. The Q2 revenue came in slightly below the consensus figures but was offset by a better-than-expected margin and an outlook for continued growth.
Starbucks benefits from consolidation within its marketplace and an international growth strategy underpinned by China. Growth in the US is still solid in the high-single-digits but outpaced by a 24% gain in International sales and a 46% increase in China, which was above estimates.
More importantly, Starbucks, like PepsiCo, pays a healthy dividend with a robust outlook for dividend growth. Starbucks yields less than PEP at 2.10% and is far from a Dividend King, but it has the power to continue paying and increasing the distribution for many years.
Monster Beverage: A Monster Time To Buy
Shares of Monster Beverage pulled back over the summer and are at a critical level now. The pullback is due to weak performance relative to the analysts' consensus estimate. Still, the company is growing faster than its peers, and earnings are also growing.
The stock does not pay a dividend, but it could in the future; until then, it is in a solid uptrend supported by growth and valuation and should continue to trend higher over the next 12 to 24 months.
The stock trades at a higher valuation than Pepsico and The Coca-Cola Company (NYSE: KO) but the growth outlook offsets that. The company is expected to maintain growth in the low single digits for the next 2 years and to widen its margins. Earnings growth will outpace revenue in 2024, impacting the analysts' outlook.
More analysts are following Monster than Pepsico, with a better rating, and Pepsico is a good stock. They rate MNST a Moderate Buy with a price target about 10% above the current action, and the target is trending higher.
