US stocks seesawed last Friday, but all three major indexes closed the month in the red — a sign of increasing unease in markets. “Extreme fear” was the sentiment driving markets on Friday and for the fourth day in a row, and the best-performing concepts is Brewers.
Considering the different perceptions of the stock, this time TigerPicks chose $Anheuser-Busch Inbev SA(BUD)$ to have a fundamental highlight to help users understand it better.
$Anheuser-Busch Inbev SA(BUD)$
Founded in 2008, Belgium-based Anheuser-Busch InBev SA/NV, commonly known as AB InBev, is America's leading brewing company, which is engaged in the production and distribution of alcoholic and non-alcoholic beverages worldwide.
It has over 400 iconic beer brands, some of which include Budweiser, Corona, Stella Artois, Castle, Hoegaarden, Aguila, Antarctica, Bud Light, Cristal, Harbin, Modelo Especial, Quilmes, Sibirskaya Korona, and Skol among others.
Financial Analysis
BUD has bounced from its all-time support levels of $41s as expected as it also charts an impressive +26.3% return within the past few weeks, with the same outperformance also observed in its peers in varying degrees.
This is a surprising development indeed, given the intensified tariff war on alcohol and aluminum, one that may directly impact the breweries' intermediate term prospects no matter the 30-day suspension.
These reasons are also why we believed that the recent rally may have occurred overly fast and furious, especially since we may see an uncertain FY2025 performance ahead, pending further policy clarity.
For now, part of the stock price recovery tailwinds may be attributed to BUD's double beat FQ4'24 performance, with revenues of $14.84B (-1.3% QoQ/ +2.5% YoY), adj EBITDA margins of 35.3% (-0.7 points QoQ/ +1.6 YoY), and adj EPS of $0.88 (+2.3% QoQ/ +7.3% YoY).
Combined with the "production cost efficiencies and disciplined overhead management" along with successful D2C strategy, it is unsurprising that the company has reported richer bottom-lines and drastically expanded Free Cash Flow generation at $11.32B in FY2024 (+28.6% YoY).
The Consensus Forward Estimates
These reasons are likely why BUD is likely to outperform the consensus estimates of top/ bottom-line growth at a CAGR of +3.5%/ +4.4% through FY2027, while accelerating from the 5Y historical growth at +2.7%/ -2.9% and 10Y growth at +2.4%/ -4.2%, respectively, underscoring its renewed growth opportunity ahead.
These reasons are also why we believe that BUD remains cheap at FWD EV/ EBITDA valuations of 8.96x and FWD P/E non-GAAP valuations of 16.47x, compared to its 1Y mean of 9.05x/ 17.01x, 5Y mean of 10.54x/ 20.73x, and 10Y mean of 11.78x/ 20.88x, respectively, despite the notable upgrade from the prior article levels of 8.02x/ 13.85x.
Is BUD Stock A Buy, Sell, or Hold?
BUD 15Y Stock Price
For now, BUD has already bounced from the established floor of $40s ranges as it also break-outs from the prior resistance levels of $52s while currently retesting the next resistance levels/200 day moving averages of $58s.
Even so, it is apparent that the stock remains cheap compared to our prior fair value estimate of $60.60 offered in our last article, based on the LTM adj EPS of $3.45 ending FQ3'24 (+9.5% sequentially) and the prior 1Y P/E non-GAAP mean of 17.58x.
Based on the consensus FY2027 adj EPS estimates of $5.09, there remains an extremely rich upside potential of +52.2% to our long-term price target of $89.40 as well, despite the recent rally.
Combined with the raised FY2024 dividend payout to €1 per share (+22% YoY), we believe that BUD's investment thesis across capital appreciation and dividend incomes remain compelling, resulting in our reiterated Buy rating.
Risk Warning
AB InBev faces two key threats in my opinion: changing consumer preferences and competitive pressures.
While cyclicality is a given for consumer discretionary companies, I believe AB InBev faces a much larger risk from changing tastes and drinking habits among consumers resulting in a material decline in beer consumption.
The increased health concerns and understanding around the dangers of alcohol consumption combined with the rising popularity of spirits and specialty beverages certainly could result in beer becoming a less popular drink.
This would of course be hugely detrimental to AB InBev as their core product portfolio is about 95% (measured by revenues and brewing volumes) beer based.
A similar situation is presented by both fierce competition and rising popularity of craft beers within the alcoholic beverage industry, as well as the aforementioned propensity for younger consumers to drink specialty beverages such as cocktails and hard seltzers.
Summary
Anheuser-Busch InBev is a behemoth within the beer industry. While rival firms with similar quality brands do exist, none have the same economies of scale and breadth of brands that AB InBev enjoys.
Full-year results were resoundingly positive with great increases in profitability and revenues supporting the hypothesis that AB has a real pathway to producing wonderful returns for shareholders.
The valuation is enticing with a 38% undervaluation suggesting that a deep-value opportunity might just be up for grabs in BUD stock.
In lieu of these factors, I feel it is appropriate to upgrade my rating to a Strong Buy and have added an additional 20% (compared to my initial position) worth of shares to my portfolio with a view to holding them for another 5-10 years or until a resoundingly premium valuation.
Stock Price Forecast:
Here are the target price forecasts for the next 12 months from analysts.
Based on 4 Wall Street analysts offering 12 month price targets for Anheuser-Busch Inbev Sa in the last 3 months. The average price target is $68.25 with a high forecast of $75.00 and a low forecast of $62.00. The average price target represents a 14.05% change from the last price of $59.84.
Resource:
https://seekingalpha.com/article/4763779-anheuser-busch-inbev-this-beer-giant-is-pouring-profits-and-brewing-value
https://seekingalpha.com/article/4763812-anheuser-busch-inbevs-reversal-is-here-double-digits-upside-potential-ahead
What are your thoughts on $Anheuser-Busch Inbev SA(BUD)$ ?
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