Anheuser-Busch InBev SA/NV (BUD) and Ambev S.A. (ABEV) sell beer and other alcoholic beverages internationally. Based in Belgium, BUD engages in the production, distribution, and sale of beer, alcoholic beverages, and soft drinks worldwide. It offers a portfolio of approximately 500 beer brands. In comparison, ABEV is a Brazilian brewing company that produces, distributes, and sells beer, draft beer, carbonated soft drinks (CSD), other non-alcoholic beverages, malt, and food products in the Americas.
Most brewing companies shifted to online platforms to stay afloat amid the pandemic-led remote lifestyle. This has helped them expand their market reach and customer base. Moreover, the introduction of richness in flavor should bode well for many brewers. The global beer market is expected to grow at a 4.2% CAGR to reach $962.39 billion by 2026.
Although soaring inflation, labor shortages, and supply chain disruptions have led to beer prices surging lately, the inelastic demand for alcoholic beverages and modification of business models should benefit ABEV and BUD.
ABEV is a winner with 8.1% gains versus BUD’s negative returns over the past month. But which of these stocks is a better pick now? Let’s find out.
Recent Financial Results
BUD’s total revenues for its fiscal 2021 third quarter ended September 30, 2021, increased 7.6% year-over-year to $14.27 billion. The company’s gross profit came in at $8.24 billion, representing an 11.4% rise from the prior-year period. 0Its EBIT came in at $4.02 billion, up 7.1% from the prior-year period. While its net profit increased 26% year-over-year to $1 billion, its EPS increased 36.7% to $0.50.
For its fiscal 2021 third quarter ended September 30, 2021, ABEV’s net revenue increased 18.5% year-over-year to R$18.49 billion ($3.55 billion). The company’s gross profit came in at R$9.24 billion ($1.77 billion), up 12.9% from the prior-year period. Its income from operations came in at R$4.02 billion ($771.36 million), representing a 12% rise from the year-ago period. ABEV’s normalized profit came in at R$3.75 billion ($720.54 million), indicating a 50.4% year-over-year improvement. Its EPS increased 53.3% year-over-year at R$0.23.
Past and Expected Financial Performance
BUD’s levered free cash flow and total assets have decreased at CAGRs of 12.8% and 2.9%, respectively, over the past three years. The company’s tangible book value increased marginally over the past three years.
Analysts expect BUD’s EPS to rise 49.7% year-over-year in fiscal 2021, ended December 31, 2021. Its revenue is expected to grow 14.8% year-over-year in fiscal 2021. The company’s EPS is expected to grow at a rate of 16.3% per annum over the next five years.
In comparison, ABEV’s levered free cash flow and total assets have grown at CAGRs of 3.1% and 12.2%, respectively, over the past three years. The company’s tangible book value has grown at 26% CAGR over the past three years.
ABEV’s EPS is expected to rise 7.1% year-over-year in fiscal 2021, ended December 31, 2021. Its revenue is expected to grow 19.9% year-over-year in fiscal 2021. Analysts expect the company’s EPS to grow at a 7.9% rate per annum over the next five years.
Valuation
In terms of forward EV/Sales, BUD is currently trading at 4.09x, 35.4% higher than ABEV’s 3.02x. In terms of forward EV/EBITDA, ABEV’s 9.47x compares with BUD’s 11.49x
Profitability
BUD’s trailing-12-month revenue is almost 4.2 times ABEV’s. However, ABEV is more profitable, with a 22.8% net income margin versus BUD’s 9.4%.
Furthermore, ABEV’s ROE and ROTC of 19.4% and 11.9% compared with BUD’s 9.4% and 4.9%, respectively.
POWR Ratings
While ABEV has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, BUD has an overall C grade, equating to a Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
Both ABEV and BUD have a C grade for Value, which is in sync with its slightly higher-than-industry valuations. ABEV has a 20.33x non-GAAP forward P/E, which is 5.5% lower than the 19.28x industry average. BUD’s 22.55x non-GAAP forward P/E is 17% higher than the 19.28x industry average.
ABEV has an A grade for Quality, consistent with its higher-than-industry profitability ratios. ABEV’s 11.7% trailing-12-month return on total assets is 151.3% higher than the 4.7% industry average. BUD’s C grade for Quality is in sync with its lower-than-industry profitability ratios. BUD has a 2.3% trailing-12-month return on total assets, 51% lower than the industry average of 4.7%.
Of the 36 stocks in the B-rated Beverages industry, ABEV is ranked #8, while BUD is ranked #25.
Beyond what we have stated above, our POWR Ratings system has also rated ABEV and BUD for Growth, Sentiment, Momentum, and Stability. Get all ABEV ratings here. Also, click here to see the additional POWR Ratings for BUD.
The Winner
Strong consumer demand and the introduction of new flavors should enable brewers ABEV and BUD to overcome rising input costs and grow substantially. However, higher profitability and relatively lower valuations make ABEV a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Beverages industry.
BUD shares were trading at $62.64 per share on Friday afternoon, down $1.04 (-1.63%). Year-to-date, BUD has gained 3.45%, versus a -7.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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