What are we looking for?
Big news is brewing in the beverages industry as Anheuser-Busch InBev SA continues to push for a merger with Britain-based rival SABMiller PLC in what could be one of the biggest mergers in corporate history. This is a very competitive industry in which margins are always under pressure and market share growth is usually accomplished through acquisitions. Today, I take a closer look at beverage companies in North America and Britain.
The screen
I started by eliminating the smaller companies with a market capitalization of less than $250-million. Next, I filtered for firms with operating margins – as well as return on equity – above 10 per cent. As a measure of financial leverage, I included only firms with total long-term debt to capital of less than 60 per cent.
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What did we find?
I used Thomson Reuters Eikon and found 14 companies that fit my criteria. Constellation Brands Inc. is an international beer, wine and spirits company based in the United States. It sell brands such as Corona, Canadian winery Jackson Triggs and McMaster's Canadian Whisky. The company's shares have more than doubled since it acquired the producer of Corona in 2013. Even with intense competition, the company has been able to maintain profitability margins above that of its rivals. Although Constellation's debt levels are higher than many of its peers, its acquisitions have proven accretive and it has committed to reinvesting into its business to fuel organic growth.
Dr Pepper Snapple Group Inc. is a manufacturer and distributor of non-alcoholic beverages such as Canada Dry ginger ale and Clamato. Compared with larger rivals Coca-Cola Co. and PepsiCo Inc., Dr Pepper Snapple has been growing its net income at a higher rate and shares may be purchased at a lower earnings multiple. The company is one of the largest beverage companies without a controlling shareholder and could become a takeover target in the next few years.
Investors are advised to conduct their own independent research before purchasing shares in the companies shown.
Charles Martin, CFA, works in the financial and risk unit of Thomson Reuters and specializes in asset management.