National Beverage Company (SPARKLING) and The Coca-Cola Company (KO) are significant players in the beverage industry. FIZZ produces and sells a portfolio of sparkling waters, juices, energy drinks and soft drinks, primarily in the United States and Canada.
On the other hand, KO owns or licenses, markets beverage concentrates, brands of finished sparkling soft drinks, energy drinks, dairy products and syrups to fountain retailers such as restaurants and convenience stores.
The price index for non-alcoholic beverages has increased 1.7% compared to the previous month. However, being non-cyclical in nature, soft drink businesses are expected to experience steady demand. Additionally, launching new products to keep up with changing consumer tastes and mitigating supply chain issues should help fundamentally healthy soft drink companies perform well.
Investor interest in this space is evident in the First Trust Nasdaq Food & Beverage ETFs (FTXG) Returns of 5.3% over the past nine months versus SPDR S&P 500 Trust ETFs (TO SPY) 12.1% loss. The global soft drinks market is expected to grow at a pace 4.7% CAGR to reach $1.19 trillion by 2028. Therefore, FIZZ and KO stand to benefit.
While FIZZ has gained 3.6% over the past year, KO has jumped 16.3%. KO is a clear winner with gains of 7% over the past six months against FIZZ’s returns of 6.6%. But which of these actions is a better choice now? Let’s find out.
Recent financial results
For fiscal 2022 ended April 30, 2022, FIZZ’s revenue increased 6.1% year-over-year to $1.14 billion. However, the company‘s gross profit was $338.70 million, which was a slight decrease from the prior year period. Its operating profit was $207.86 million for the quarter, indicating an 8.8% year-over-year decline.
FIZZ’s net profit was $158.51 million, down 9% from the prior year period. Its EPS fell 9.1% year-over-year to $1.69. As of April 30, 2022, the company had $48.05 million in cash and cash equivalents.
For the first quarter of fiscal 2022 ended April 1, 2022, KO’s net operating revenue increased 16.4% year-on-year to $10.50 billion. The company’s non-GAAP gross profit was $6.27 billion, an increase of 14.8% over the prior year period. Its non-GAAP operating profit was $3.30 billion for the quarter, an increase of 18.2% over the year-ago period.
While its non-GAAP net income rose 16.6% year-over-year to $2.80 billion, its non-GAAP EPS rose 16.4% to $0.64. As of April 1, 2022, the company had $7.68 billion in cash and cash equivalents.
Past and expected financial performance
Over the past three years, FIZZ’s revenue, net profit and EPS grew at CAGRs of 3.9%, 4% and 4.1%, respectively.
FIZZ’s EPS is expected to increase 10.1% year-over-year in fiscal 2023, ending April 30, 2022, and 8.1% in fiscal 2024. Its figure revenue is expected to grow 5.3% in fiscal 2023 and 5.1% in fiscal 2024. Its EPS is expected to grow at a rate of 25.6% annually over the next five years.
Over the past three years, KO’s revenue, net profit and EPS have increased by 5%, 15.2% and 14.7% CAGR, respectively.
Analysts expect KO’s EPS to grow 6.5% year-over-year in fiscal 2022, ending December 31, 2022, and 7.3% in fiscal 2023. Its revenue is expected to grow 8.2% year-over-year in fiscal 2022 and 5.3% in fiscal 2022. Its EPS is expected to improve at a rate of 6 .6% per year over the next five years.
In non-GAAP forward P/E terms, FIZZ is currently trading at 26.36x, 3.6% higher than KO’s 25.45x. In terms of 12-month Price-to-Book, KO’s 10.97x compares to FIZZ’s 21.63x.
KO’s revenue over the last 12 months is 35.2 times greater than that of FIZZ. Moreover, KO is also profitable, with 60.3% Gross margin against 36.7% for FIZZ.
Additionally, KO’s EBITDA margin, net income margin and free cash flow margin of 33.2%, 25.7% and 17.5% compare to 19.9%, 13.9 % and 7% of FIZZ, respectively.
While KO has an overall rating of B, which translates to Buy in Our Own POWR Rankings system, FIZZ has an overall rating of C, equivalent to Neutral. POWR ratings are calculated by considering 118 separate factors, each weighted to an optimal degree.
FIZZ and KO were both rated C for Momentum, consistent with their mixed price performance over the past year.
KO was rated B in terms of stability, which is in line with its lower volatility compared to the broader markets. KO has a beta of 0.59. FIZZ’s C rating for stability reflects its relatively higher beta.
Among the 35 shares listed A Beverages industry, KO is ranked #13, while FIZZ is ranked #19.
Beyond what we’ve stated above, our POWR rating system ranked FIZZ and KO for Sentiment, Value, Growth, and Quality. Get all KO odds here. Also, Click here to see additional POWR ratings for FIZZ.
The almost inelastic demand for soft drinks in any economic cycle should allow KO and FIZZ to stay afloat in uncertain economic conditions. However, a relatively lower valuation and higher profitability make KO a better buy here.
Our research shows that the odds of success increase if one invests in stocks with an overall POWR rating of Buy or Strong Buy. Click here to access top-rated beverage stocks.
FIZZ shares were trading at $49.47 per share on Friday afternoon, up $0.53 (+1.08%). Year-to-date, FIZZ has gained 9.13%, versus a -19.12% rise in the benchmark S&P 500 over the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a particular interest in researching market inefficiencies. She is passionate about educating investors, so they can succeed in the stock market. After…