Near-Term Outlook For The Soft Drinks Industry Lacks Fizz
Zacks Investment Research | Jul 09, 2019 11:27PM ET
The Zacks Industry Rank , which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimates for the current year have declined nearly 20%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Versus Broader Market
The Zacks Beverages – Soft Drinks industry has underperformed both the S&P 500 Index and the Consumer Staples sector in a year’s time.
While the industry has gained 4%, the S&P 500 has advanced 5.8%. Meanwhile, the sector has registered growth of 4.1% in the said time frame.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing soft drinks stocks, the industry is currently trading at 23.65X compared with the S&P 500’s 18.39X and the sector’s 19.58X.
Over the last five years, the industry has traded as high as 25.10X and as low as 19.88X, with a median of 22.26X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
Bottom Line
While efforts to add healthier beverages and strategic buyouts build optimism for the soft drinks industry, CSD category headwinds, and higher input and operating costs cannot be ignored. Furthermore, a complete transformation of the carbonated drinks portfolio will take time and remains a drag on volumes. An unimpressive Zacks Industry Rank also signifies bleak prospects.
Get The News You Want
None of the stocks in the Zacks Beverages – Soft Drinks space currently sport a Zacks Rank #1 (Strong Buy). Despite the near-term hurdles, the industry has two stocks carrying a Zacks Rank #2 (Buy), which are well poised for growth. We suggest two other stocks with a Zacks Rank #3 (Hold) that investors may hold on to. You can see Original post
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