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Anheuser Busch Inbev SA (ADR) (BUD), Boston Beer Co Inc (SAM): Is This Beer Behemoth Drinking up All the Industry Profits?

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Recently, Anheuser Busch Inbev SA (ADR) (NYSE:BUD) has experienced a huge rise in the market price, from $88.80 per share to nearly $98 per share, its two month high, within just several days. The bullish market momentum for Anheuser Busch Inbev SA (ADR) (NYSE:BUD) was mainly due to the growing second quarter operating revenue. Anheuser Busch Inbev SA (ADR) (NYSE:BUD) was in the investment portfolios of many famous investors including Tom Russo, Jean-Marie Eveillard and Steven Cohen. Is Anheuser Busch Inbev SA (ADR) (NYSE:BUD) a good buy at its current trading price? Let’s take a closer look.

Global leader in beer, with a lot of coming synergies

Anheuser-Busch InBev NV (ADR) (NYSE:BUD)In the second quarter, its revenue increased by 3.9% to nearly $10.58 billion while its EBITDA delivered a 5.8% growth to nearly $3.9 billion. The EBITDA margin came in at 36.8%, 67 basis points higher than the EBITDA margin last year. Interestingly, the revenue per hectoliter rose in many major markets including the U.S. (3.9% growth), Brazil (10%) and China (7.4%). Budweiser, its flagship brand, has experienced a decent growth at 6.3%, with the strong volume and share growth in China, Brazil, Russia and Ukraine. Its normalized EPS came in at around $0.93 per share, lower than normalized EPS of $1.21 in the second quarter last year. The lower EPS was mainly due to higher net finance costs and income tax expenses.

What investors might like about Anheuser Busch Inbev SA (ADR) (NYSE:BUD) is its global leading position, representing as much as 43% of the total global beer industry EBIT (earnings before interest and taxes). The company ranks number one in the U.S., Brazil and Mexico while having the number three position in China. Moreover, the company reported that Grupo Modelo integration had been processing quite well. The company focuses its efforts on driving daily sales execution and improved trade programs to achieve solid organic volume growth.

The company commits to generate as much as $1 billion of synergies in the next 3-4 years. Around 40-45% of the savings would be from cost of sales while the operating expenses might account for 55%-60% of the total savings. With the acquisition of Mexico’s Grupo Modelo, its net debt/EBITDA (earnings before interest, taxes, depreciation and amortization) was around 2.5. By 2014, Anheuser Busch Inbev SA (ADR) (NYSE:BUD) targeted reducing the leverage level to around 2 times net debt/EBITDA. It is trading at around $97.50 per share, with the total market cap of $156.20 billion. The market values AB InBev quite expensively, at 17.7 times its forward earnings. The company offers investors a dividend yield at 2.10%.

AB InBev could be a solid long-term stock with its global leading position in many countries. In the past ten years, outside China, the market share of the four biggest beer players has increased from 35% to 60% through massive consolidation. Latin America, the U.S. and Europe is quite consolidated now. However, there are plenty of consolidation opportunities for AB InBev in China and Southeast Asian countries, including Thailand and Vietnam. If the state-owned breweries in those countries were privatized on a larger scale, it could be a good opportunity for AB InBev for substantial future growth.

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