59 yuan
We previously covered Anheuser-Busch InBev SA/NV (BUD) in November 2023, discussing that its sales in North America were (still) suffering, with losses intensifying as management had to provide financial assistance to its wholesalers.
Then again, we have Maintaining our Buy rating, management’s successful marketing efforts elsewhere contribute to its excellent fiscal 2023 guidance and promising consensus forward forecasts through fiscal 2025.
In this article, we discuss why we remain optimistic about its long-term outlook, with BUD reporting that headwinds for North American sales have bottomed out and market share stabilized by Q4’23.
At the same time, management continues to invest in the high-growth ready-to-drink spirits/zero beer segment as consumers increasingly demand healthier and more beverage options.
With a balanced outlook, we believe BUD is likely to deliver more than Considerable capital appreciation over the next few years.
The BUD investment thesis remains attractive, with significant upside potential ahead
Currently, BUD is reporting a relatively good FQ4’23 earnings call with revenue of $14.47B (up 6.2% organically), Adjusted EBITDA of $4.87B (up 6.2% organically), and adjusted EPS of $0.82 (up 6.2% organically). Annual growth -4.6%) ).
Fiscal 2023 performance was similarly good at $59.38B (+7.8% organic), $19.97B (+7% organic), and $3.05 (year-over-year), with beer sales down -2.3% year over year and a very balanced non-beer sales An increase of 2.1% compared with the same period last year.
On the one hand, it’s clear that BUD’s fiscal 2023 North American sales are down significantly -$1.37B year-over-year and adjusted EBITDA is down -$1.26B year-over-year because Dylan Mulvaney strongly disagrees.
With the region being a key driver for its fiscal 2022, we can understand why the beverage company failed to recover from the backlash that saw many consumers opting for rival brands.
If anything, BUD has been painful”Step down“Modelo is now the best-selling beer in the United States, with Modelo Especial occupying the top position with a retail share of 8.7%, while Bud Light in the week before and after the Super Bowl had a 7.3% share.
With Bud Light’s sales down -30% year over year during Super Bowl week, it’s no surprise that management commented that the company’s “full growth potential[in fiscal 2023]is limited by the performance of its U.S. operations.” “
BUD’s Global Operations
bud
On the other hand, with Papua New Guinea’s headwinds focused on the US, obviously all other regions have reported decent growth so far, which balances the situation somewhat.
This further reflects the beverage company’s diverse global offerings in areas such as beer and beyond beer (including ready-to-drink beverages), spirits and wine, allowing management to leverage multiple levers to drive volume growth, market share expansion and balance the financials Performance.
If anything, BUD continues to invest in its fastest-growing area – beyond beer, Consumers are increasingly demanding health and expanded alcoholic beverage selections.
The initiative has proven relatively successful, with BUD’s range of alcohol-free beers leading the market in U.S. sales. $117.42 million in 2023far exceeding Heineken (OTCQX:HEINY)’s $77.45 million and Athletic Brewing’s $51.83 million.
Globally, BUD’s extensive zero-beer selection also triggered impressive “FY23 revenue growth,” underscoring its ability to attract health-conscious consumers.
If anything, BUD management has secured its first-ever beer sponsorship deal zero crown Hosting the Olympics by 2028 further underlines their determination to create new growth.
Meanwhile, BUD’s ready-to-drink spirits portfolio achieved double-digit sales growth and far outperformed peers in fiscal 2023.
Euromonitor forecast non-alcoholic spirits With a CAGR of +30% likely over the next few years, and traditional spirits expected to grow at a CAGR of +6%, we believe we may see new growth from the company’s diversified alcohol portfolio, while Capture meaningful market share in the long term – semester.
BUD sales steady in North America
bud
Meanwhile, the sequential situation appears to be stabilizing, as BUD’s North American sales decline peaked in Q3’23 at -4740 boxes and improved sequentially in Q4’23 at -356000 boxes.
The same situation was also reported in Market losses narrow As of February 2024, the index stood at -4.43 points, while May 2023 reported a loss of -5.63 points and December 2023 reported a loss of -4.74 points.
While the North American market may underperform in the short term, we remain confident that the worst may be behind us as management continues to address challenges and slowly regain beer market share.
North America Adjusted EBITDA margin fell to 29.2% (-2.7 points QoQ/-6.3 points YoY) and 31.4% (-5.2 points YoY) in Q4 2023 as BUD ramped up marketing and invested in multiple partnerships. ) is no surprise. ) in fiscal year 2023.
Given the medium-term headwinds, readers may want to note that similar bottom-line headwinds may persist until conditions normalize.
Currently, despite headwinds in the U.S. market, BUD continues to deliver strong shareholder returns, with continued share repurchases keeping the share count stable at approximately 2.01B shares and an impressive 9.3% year-over-year dividend growth. €0.75 per share EUR 0.82 per share in 2022-2023.
Meanwhile, management continues to focus on balance sheet deleveraging, keeping long-term debt at $72.03B (-6.3% year-over-year) and increasing cash/equivalents by $10.33B (+3.6% year-over-year) in fiscal 2023.
So, it’s clear that BUD has been making the most of its strong free cash flow to generate $8.62B (6% annual growth), further underscoring why the stock remains a viable dividend investment thesis.
At the same time, management guided for adjusted EBITDA growth in the range of +4% to +8% in fiscal 2024, which is higher than the historical growth of +2.5% compound annual growth rate from fiscal 2016 to fiscal 2023.
Consensus forward estimate
Tikkel Pier
Given these promising developments, we can understand why the consensus modestly increased their forward forecasts, projecting BUD to accelerate expansion at a CAGR of +4.6% and +6.4% through fiscal 2026.
This compares to previous forecasts of +4.5%/+5.5%, further signaling confidence in the company’s ability to withstand temporary headwinds in North America.
Budapest Valuation
Seeking Alpha
Due to these developments, we still believe that BUD’s current valuation remains attractive, with FWD EV/EBITDA of 9.09x and FWD P/E of 17.78x, compared with the pre-pandemic 3-year average of 13.25x/21.47x.
While these numbers appear higher than Molson Coors Beverage Company (TAP) (FWD: P/E of 11.83x), BUD is still reasonably valued compared to its alcoholic beverage peers, including Carlsberg (OTCPK:CABGY), which trades at FWD: P/E of 11.83x . 16.58 times, HEINY is 17.20 times, and the industry median is 17.79 times.
As a result, we believe BUD is not expensive here, and management’s recent execution further demonstrates why they have learned their hard lessons and are very focused on turning around U.S. consumer sentiment while boosting global growth.
So, is BUD stock a buy?sell, or hold?
BUD 5-year stock price
trading view
Currently, BUD has lost some of its recent 4Q23 gains amid reports that Altria (MO) will sell some of its BUD shares to fund stock buybacks.
However, we believe the recent pullback will result in the forward dividend yield expanding to 1.37%, relatively in line with the 4-year average of 1.39%. Dividend chasers can also expect the 2023 dividend to be paid on June 7, 2024, to shareholders of record on May 6, 2024.
Based on fiscal 2023 adjusted EPS of $3.05 and a FWD P/E valuation of 17.78x, we believe BUD is trading close to our estimated fair value of $54.20. Based on the fiscal 2026 adjusted EPS forecast of $4.51, our long-term price target of $80.10 appears to have significant upside potential of +33.8%.
We maintain our Buy rating on BUD stock due to its (expected) dual-pronged returns through capital appreciation and dividend income.
