AB InBev Hits 52-Week High: Is it Sustainable?

Zacks Equity Research
April 3, 2014

Shares of Anheuser-Busch InBev SA/NV (BUD), also known as AB InBev, reached a new 52-week high of $107.27 yesterday and closed the trading session at $106.94. However, the primary question here is to whether the stock will be able to sustain the momentum.

The company, which is also the world’s largest brewer, apparently finds it difficult to keep up the momentum despite posting better-than-expected fourth-quarter 2013 results due to a weak outlook for 2014. AB InBev expects its market share to decrease in 2014 and cost of goods sold per hectoliter to rise in low single digits.

The Zacks Consensus Estimate for 2014 and 2015 witnessed downward revisions after the company provided a tepid guidance. The Zacks Consensus Estimate for 2014 declined 2.1% to $5.21 per share in the last 60 days while for 2015, it fell 5.9% to $5.93 over the same time frame.

On looking at the company’s share price movement, we observe that it has gained 3% since its earnings release and the same percentage in the year-to-date period. Further, the stock has lagged behind the S&P 500 growth of 20.4% over the one-year period as it gained merely 10.1% in the said period.

Further, the company is aggressively expanding its brand portfolio and global footprint but at the cost of a high leverage ratio. The company’s net debt increased by $8.7 billion to $38.8 billion at the end of 2013 from 2012-end mainly due to the acquisition of Grupo Modelo.

So far this year, AB InBev has acquired South Korea-based Oriental Brewery and New York-based Blue Point Brewing Co. We believe that the high debt level has also made investors cautious about the company’s performance as the increased debt levels could dig into the major part of its profits.

Moreover, the stock currently trades at a premium to the industry average based on forward earnings estimate, which limits its upside potential. Furthermore, AB InBev’s long-term expected earnings per share growth of 6.3% is lower than the industry average of 7.2%.

Due to the above-mentioned factors, the company currently holds a Zacks Rank #4 (Sell). Hence, we would suggest keeping away from the stock as of now.

Other Stocks to Consider

Some better-ranked stocks worth considering in the alcoholic beverage industry include Beam Inc. (BEAM), Brown-Forman Corporation (BF.B) and Diageo plc (DEO). All of these have a Zacks Rank #2 (Buy).

Read the Full Research Report on BF.B
Read the Full Research Report on DEO
Read the Full Research Report on BUD
Read the Full Research Report on BEAM


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