Shares of Anheuser-Busch InBev (AB InBev), the parent company of Bud Light, surged by as much as 4% on Friday following an upgrade from Bank of America. The financial institution elevated AB InBev stock from Neutral to Buy, citing anticipated improvements in profit growth. Analysts believe that the impact of the Bud Light boycott fallout, input cost pressures, and investments in Latin America have already been factored into the stock price.
According to Bank of America analyst Andrea Pistacchi, “Anheuser-Busch InBev’s margins are at an inflection point, in our view, as cost of goods sold (COGS) pressures have started to ease, [the greater than] $1 billion profit hit from Bud Light is in the base and a higher cost of doing business, which has weighed on margins in recent years, is now largely in the base too, we believe.” This insight was communicated in a note to clients.
The recovery of AB InBev stock is a positive development in what has been a challenging year for the company. Year-to-date, AB InBev stock has seen a decline of 7.7%. In contrast, shares of competitors Molson Coors (TAP) and Constellation Brands (STZ) have experienced gains of 23% and 8% respectively.
Margins at the beer industry titan have been on a downward trend since 2018. However, Bank of America anticipates a 300 basis points increase over the next three years.
Pistacchi further stated, “From a top-down perspective, in the current environment, ABI offers relatively good earnings visibility, with its Latin America exposure (which should be fairly resilient) and earnings per share growth supported by pricing power, cost of goods deflation and deleveraging.” Nevertheless, the analysts do not foresee margins returning to 2019 levels.
In the most recent quarterly results, the company slightly exceeded expectations for earnings per share, reporting $0.72 compared to the expected $0.71. Bloomberg estimates anticipate earnings per share to reach $0.89 in the third quarter. AB InBev is scheduled to release its earnings report on October 31.
Despite these positive indicators, volume declines for AB InBev persist, particularly as the crucial NFL football season unfolds.
In light of Bud Light’s challenges this year, Bump Williams of Bump Williams Consulting noted that beer brands are navigating “uncharted waters” this football season. Following a marketing campaign with transgender influencer Dylan Mulvaney in April, a widespread boycott in May led to a significant decline in Bud Light sales, causing it to lose its top spot to Modelo.
Six months later, Bud Light sales remained down by 28.1% compared to the previous year, according to data from Bump Williams Consulting. Meanwhile, competitors like Coors Light (TAP) continue to experience a boost, with sales up by 19.6%.
Other brands within AB InBev’s portfolio have also felt the impact. Sales of Budweiser have decreased by 11.5%, and sales of Michelob Ultra, Stella Artois, and Busch Light, among others, have experienced single-digit percentage declines.
Marketing professor Tim Calkins from Northwestern University commented, “Bud Light is likely to spend an enormous amount of money to try to rebuild its brand after the shocking declines earlier this year. The competitors are going to work very hard to make it difficult for Bud Light to do that.”
In conclusion, with Bank of America’s upgrade and positive outlook, the surge in shares of AB InBev reflects a newfound confidence in the company’s trajectory and potential for growth in the coming years.
Source: Yahoo Finance
