It's time to buy Bud Light's stock even if Americans aren't back to buying Bud Light just yet, according to Deutsche Bank analyst Mitch Collett.
Collett upgraded Bud Light's parent company, Anheuser-Busch InBev (BUD), from Hold to Buy and raised his price target from $52 to $60, noting that Bud Light is "at the end of the tunnel" of its controversy.
"We believe recent underperformance implies a permanent reduction in ABI's US business," Collett wrote. "Our proprietary survey data suggests these headwinds are likely to fade even if we do not expect the US business ever to fully recover from its current challenges."
Bud Light sales have tanked over the last two months as beer drinkers boycott the brand following an advertising campaign with transgender influencer Dylan Mulvaney. In the week ending June 10, Bud Light sales declined 26.8% compared to the same period a year prior, marking the ninth straight week of declines greater than 20%, according to Nielsen. Analysis from Evercore ISI indicates that volume declines are steadying in a range of 26-28%, though no recovery is in sight yet.
ABInBev's stock has stumbled amid the declining sales reports and Modelo surpassing Bud Light as the top-selling beer in America. Shares are down roughly 13% since the beginning of April when the Mulvaney ad campaign was launched.
Deutsche Bank estimates that the current sales declines represent about a 12% headwind to ABI's net income on an annual basis. But with those declines potentially priced into the stock, Deutsche thinks Bud Light could be well-positioned if sentiment flips.
"Analysis of distribution data suggests ABI is not losing shelf presence with sales velocity the primary driver of decline," Collett wrote. "This bodes well if consumer sentiment improves."
In other words, stores are still stocking their shelves with Bud Light. So if drinkers want to return to their longtime favorite beer, it will be waiting in the cold fridge.
But Deutsche Bank also notes that if those sales don't come back, North America only accounts for 30% of AbInBev's global profits.
For its part, Bud Light is still trying to revive its audience. After putting two marketing executives on leave following the backlash, Bud Light is now launching a new advertising campaign featuring the song "Good Times" by Chic. The ad shows scenes of everyday people doing summer activities like cooking out or hanging by the lake while drinking Bud Lights.
But some Wall Street analysts don't see good times ahead for the Bud Light brand itself. Deutsche Bank sees some of Bud Light's declines as a "permanent reduction" in AbInBev's US business. Evercore ISI analyst Robert Ottenstein agrees.
"Bud Light will permanently lose about 15-20% of its volume, after which declines will resume at about the average rate of the prior 10 years," Ottenstein wrote in a note on Wednesday. "Budweiser will also see a similar pattern, with consumers lost in 2022 not coming back."
Josh is a reporter for Yahoo Finance.
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