5 Soft Drink Stocks to Watch as Health Trends Shake Up the Industry

Industry Overview - The Zacks Beverages – Soft Drinks industry is characterized by strong growth potential driven by rising consumer demand for healthier, functional, and eco-friendly beverages [1] - Companies are innovating and diversifying their portfolios to capture new market opportunities [1] - The industry is experiencing a digital transformation with brands adopting direct-to-consumer channels and subscription models to enhance customer relationships [1] Current Challenges - The industry faces persistent headwinds such as elevated input costs, supply-chain disruptions, and tariff-related uncertainties that pressure margins [2] - Rising packaging and freight expenses, along with volatile commodity prices, challenge profitability [2] - Newly imposed U.S. tariffs on imports from Canada and Mexico create additional financial pressure and uncertainty [6] Consumer Trends - There is a significant shift in consumer preferences towards healthier beverage options, including drinks made with natural ingredients and reduced sugar [4] - Plant-based beverages and functional drinks that promote hydration and energy are gaining popularity among health-conscious consumers [4] - Companies are expanding into adjacent categories, such as ready-to-drink alcoholic beverages, to capitalize on these trends [4] Digital Growth & Innovation - The industry is leveraging digital transformation to enhance consumer engagement and boost growth [5] - Brands are investing in direct-to-consumer platforms and subscription-based models to secure recurring revenue [5] - Product innovation remains a key growth driver, with companies refining their portfolios and launching new products [5] Financial Performance - The Zacks Beverages – Soft Drinks industry currently holds a Zacks Industry Rank of 63, placing it in the top 26% of over 250 Zacks industries, indicating bright near-term prospects [8] - The industry has underperformed the Consumer Staples sector and the S&P 500 Index over the past year, with a collective growth of 0.4% compared to the sector's 3.5% and the S&P 500's 11.9% [10] Valuation Metrics - The industry is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 18.68X, compared to the S&P 500's 21.97X and the sector's 17.75X [13] - Over the past five years, the industry's P/E ratio has ranged from a high of 23.8X to a low of 17.22X, with a median of 21.45X [13] Notable Companies - Coca-Cola (KO): Positioned for long-term growth through strategic transformation and digital investments, with a projected sales growth of 2.4% and earnings growth of 2.8% for 2025 [17][18] - Zevia (ZVIA): Focused on zero-sugar, naturally sweetened drinks, with a projected sales growth of 3.4% and earnings growth of 38.7% for 2025 [21][22] - Monster Beverage (MNST): Continues to perform well in the energy drinks category, with projected sales growth of 5.9% and earnings growth of 14.8% for 2025 [24][25] - Keurig Dr Pepper (KDP): Expected to benefit from growth in the Refreshment Beverages segment, with projected sales growth of 5.6% and earnings growth of 6.3% for 2025 [28][29] - Primo Brands (PRMB): Specializes in healthy hydration with a projected sales growth of 145.6% and earnings growth of 52.5% for 2025 [33]