Anheuser-Busch: Beer Bargain?

06/05/2017 2:50 am EST

Focus: CONSUMER

Peter Staas

Managing Editor, Capitalist Times and Energy & Income Advisor

In terms of stock performance, the fourth quarter of 2016 turned into a nightmare for global beer giant Anheuser-Busch InBev (BUD), with the company’s Brussels-traded shares and American depositary receipt selling off by roughly 21 percent from the end of September to early December, says Peter Staas, editor of Capitalist Times.

A confluence of financial and technical factors contributed to the stocks’ sharp downdraft. Anheuser-Busch InBev’s results fell well short of Wall Street’s consensus estimates in the third quarter of 2016, thanks to declining sales volumes and shrinking profit margins in the key Latin America-North segment.

Worries about the safety of Anheuser-Busch InBev’s generous dividend in the wake of its combination with SABMiller didn’t help matters.

This speculation stemmed from the debt that the company assumed in this richly valued deal and investors recalling the 25 percent payout cut that occurred when InBev acquired Anheuser-Busch back in 2008.

Anheuser-Busch InBev’s stock rallied after the beer-maker posted solid first-quarter results, reflecting the realization of $252 million worth of synergies from the SABMiller acquisition.

Beer consumption tends to be strongest among younger urban populations; rising household incomes in emerging markets will drive global demand growth in coming decades and upgrading to what Anheuser-Busch InBev describes as its premium brands — the likes of Budweiser, Stella Artois and Corona.

Purchasing SABMiller extended Anheuser-Busch InBev’s dominant position in Africa and Latin America and makes the conglomerate the No. 2 beer company in Asia.

More important, SABMiller’s expertise growing local brands could prove valuable at a time when a strong US dollar limits the affordability of Budweiser and other premium labels in emerging markets.

Although Anheuser-Busch InBev’s exposure to Latin America — particularly Brazil — has become a headwind in recent quarters, the company’s scale in the region and dominance of key markets should fuel growth once the economy improves.

Anheuser-Busch InBev’s premium brands have also found a foothold in China, an important growth market for the next decade.

Despite stepped-up spending on advertising, Budweiser and Bud Light have continued to lose market share in North America, a trend that reflects millennial drinkers and other consumers’ growing preference for craft beers and local products.

In recent years, Anheuser-Busch InBev has leveraged its scale and financial might to acquire some of the most exciting regional craft breweries — those with dedicated followings and exemplary products — that are ready to take the next step and grow into national, perhaps even global, brands.

Anheuser-Busch InBev’s recent acquisition of Asheville, North Carolina-based Wicked Weed exemplifies this strategy. The beer-making giant pursued a similar strategy with Chicago-based microbrewery Goose Island.

Anheuser-Busch InBev’s unparalleled scale and experienced management team give the company a huge competitive advantage in capitalizing on long-term growth in emerging markets and turning the craft-beer headwind into a tailwind.

Buy Anheuser-Busch InBev’s ADR up to $122 per share for patient investors looking to build wealth over the long run.

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