We came across a bullish thesis on Anheuser-Busch InBev SA/NV (NYSE:BUD) on ValueInvestorsClub by kalman951. In this article, we will summarize the bulls’ thesis on BUD. The company’s shares were trading at $48.85 when this thesis was published, vs. the closing price of $59.84 on Feb 28.
A brewery worker pouring bottles of freshly brewed beer into boxes, representing the company’s alcoholic beer beverages.
BUD produces, distributes, exports, markets, and sells beer and beverages globally. It offers a portfolio of approximately 500 beer brands, which primarily include Budweiser, Corona, and Stella Artois; Beck’s, Hoegaarden, Leffe, and many more.
Even after its earnings beat estimates (adj. EPS of 0.98 vs consensus 0.89), the share price of BUD fell almost 25%, a contrast to a 3% rise in the S&P 500. Investors have been harsh on the stock due to a 2.4% Y-o-Y decline in volume. To make matters worse, there have been news suggesting cancer risk warnings on alcohol labels.
The fundamentals of the company remain robust even after the temporary blip. BUD continues to grow or maintain its market share in 60% of the regions it operates. Even though volumes have decreased, the product mix is more favorable as premium products (40% of total volumes) continue to grow. The premiumization strategy should enable BUD to grow at the higher end of its revenue guidance of 4-8%. FY24 adjusted EBITDA growth has been revised from 4-8% to 6-8%. The buyback value has been doubled from its previous year to $2 billion. The fact that BUD is a price maker makes it a defensive player, generating a stable cash flow of $9 billion annually. The return to shareholders is further bolstered by a lost cost of debt (4% interest with 14 years to maturity).
The EBITDA margin is 500 bps lower than its pre-pandemic level. Using a conservative margin of 35.6% and a revenue forecast of $60.75 billion, the price for BUD should be $70 or 17% higher than its current level. The valuation assumes an EBITDA multiple of 10.3x, a measure lower than the historical average of 12.2x. If BUD manages to expand its margin to its historical levels, the possibility of a higher valuation cannot be ruled out.
While we acknowledge the potential of BUD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than BUD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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