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Ambev (ABV): Zacks Rank Buy

Todd Bunton

Estimates have been rising for Ambev (ABV) after the company delivered better than expected Q4 results on March 8. Management also stated that remains positive for 2012 as disposable incomes continue to rise in Brazil.

It is a Zacks #2 Rank (Buy) stock.

In addition to strong growth potential, the company pays a dividend that yields a stellar 3.8%.

Company Description

Ambev is South America's largest beverage company, selling beer, and both carbonated and non-carbonated soft drinks.

Ambev is headquartered in Sao Paulo, Brazil and has a market cap of $127 billion. It is a subsidiary of Anheuser-Busch Inbev (BUD).

Fourth Quarter Results

Ambev reported better than expected results for the fourth quarter on March 8. Earnings per share came in at 56 cents, beating the Zacks Consensus Estimate by a penny. It was a 14% increase over the same quarter in 2010.

Net sales rose 12% year-over-year primarily due to price increases. Organic volumes were up 0.9%.

The price increases were more than enough to offset rising raw material and packaging costs. Gross profit expanded 260 basis points to 69.7% of net sales.

Meanwhile, cash flow from operations increased 61% year-over-year.


Analysts revised their estimates higher following strong Q4 results. This sent the stock to a Zacks #2 Rank (Buy).

Management recently stated that its outlook for 2012 remains positive. It expects volumes to ramp up later in the year, driven mainly by the increase in disposable income in Brazil.

The Zacks Consensus Estimate for 2012 is now $1.80, representing 15% growth over 2011 EPS. The 2013 is 11% higher at $1.99.

Solid Fundamentals

In addition to strong growth potential, the company pays a dividend that yields a solid 3.8%. With strong cash flow and solid growth prospects, this dividend looks pretty safe.

Shares trade at 22x forward earnings, above the industry median of 16x. But this premium seems justified given Ambev's above-average growth prospects.

The Bottom Line

With rising estimates, strong growth potential, a solid 3.8% yield and reasonable valuation, Ambev offers investors a lot to like.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

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