Should You Buy the Dip in Anheuser-Busch InBev?

Anheuser-Busch InBev SA/NV (BUD) in Leuven, Belgium, produces, distributes, and sells beer, alcoholic beverages, and soft drinks worldwide. It offers a portfolio of approximately 500 beer brands. The world’s largest brewer posted solid third-quarter earnings, surpassing analysts’ expectations despite supply chain issues and the rising inflation. The company reported an increase in third-quarter profit, buoyed mainly by beer sales in Brazil. BUD’s core profit increased 3% on a like-for-like basis over the period, against an expected 2.3% decline. In addition, the company raised its forecast for its 2021 earnings growth. The brewer expects its core profit or EBITDA to grow 10% - 12% in 2021, versus its earlier forecast of 8%-12% growth.

However, the shares of the Belgium-based brewer have slumped 11.5% in price for the year and 12.4% over the past six months to close its last trading session at $62.64. The stock is trading above its 50-day moving average but below its 200-day moving average. It gained 3.5% in price over the past five days.

The beer industry has been upended with supply shortages during the pandemic. With people spending more time at home during, the beer industry saw a shift to at-home drinking, increasing demand for aluminum cans, causing rising prices and delivery delays. Also, a reintroduction of glass bottles and draft beer has led to additional delays. “The main disruption,” BUD CEO Michel Doukeris says, “is supply chain.” He also cited supply chain disruptions as the primary cause of higher costs for the company over its last reported quarter and noted that he expected these disruptions to continue this year. The company’s revenue and profits have declined in the United States, Mexico, and China due to COVID-19 related restrictions and supply chain issues.

So, here is what could shape BUD’s performance in the near term:

Mixed Valuation

In terms of forward P/E, BUD is currently trading at 27.56x, which is 20.7% higher than the 22.82x industry average. Also, its 3.71 forward EV/Sales ratio is 84.7% higher than the 2.01 industry average.

BUD’s trailing-12-month non-GAAP PEG is 17.9% lower than the 2.81x industry average, and its forward Price/Book is 46.7% lower than the 3.38x industry average.

Single Digit Growth in Financials

BUD’s revenues increased 7.9% year-over-year to $14.27 billion in its fiscal third quarter, ended Sept. 30. Its gross profit stood at $8.24 billion, up 5.3% from the same period last year, while its underlying profit attributable to equity holders of BUD grew 6.1% from its year-ago value to $1.70 billion. The company’s underlying earnings per share increased 6.3% year-over-year to $0.85, surpassing the consensus estimate by 28.8%.

Bleak Past Performance

BUD’s revenues have declined at a 1.3% CAGR over the past three years. And its EBITDA and EBIT declined at a 7.7% CAGR over the same period. The company’s net income decreased at 10.5% CAGR, while its EPS decreased at a 10.4% CAGR over the past three years.

Consensus Price Target Indicates Upside

Of five Wall Street analysts that have rated the stock, two rated it Buy, while two rated it Hold, and one rated it Sell. The $69.47 median price target indicates a potential 10.9% upside from its last closing price. Their price targets range from a low of $59.89 to a high of $87.02.

POWR Ratings Reflect Uncertain Prospects

BUD has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a C grade for Value, which is consistent with its mixed valuation.

BUD also has a C grade for Stability, which is in sync with its 24-month beta of 0.91.

Of the 35 stocks in the Beverages industry, BUD is ranked #28.

Beyond what I have stated above, one  can also view BUD’s grades for Quality, Growth, Momentum, and Sentiment here.

View the top-rated stocks in the Beverages industry here.

Bottom Line

The strong  demand for alcoholic beverages helped BUD deliver stable growth despite last year’s operational disruptions. However, the company’s net income and EPS growth has been sluggish over the past few years. Moreover, analysts expect a 30.6% year-over-year decline in its EPS for the quarter ending Dec.2021, and its ROE is more than 30% below the industry average. So, we think it could be wise to wait for a better entry point in the stock.

How Does Anheuser-Busch InBev SA/NV (BUD) Stack Up Against its Peers?

While BUD has an overall POWR Rating of C, one might want to consider looking at its industry peers, Coca-Cola Consolidated, Inc. (COKE), Compania Cervecerias Unidas, S.A. (CCU), and Suntory Beverage & Food Ltd (STBFY), which have an A (Strong Buy) rating.

BUD shares were trading at $62.41 per share on Thursday afternoon, down $0.23 (-0.37%). Year-to-date, BUD has gained 3.07%, versus a -1.15% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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