Bank Of America Upgrades Anheuser Busch, But Says Mainstream Beer Still Slumping

Anheuser Busch Inbev NV BUD has a better debt picture, but beer sales, particularly of “mainstream beer,” are still going flat, Bank of America Merrill Lynch said Friday. 

The Analyst

Analyst Fernando Ferreira upgraded AB InBev from Underperform to Neutral and increased the price target from $68 to $91.

The Thesis

Investors had been concerned for some time about AB’s high debt levels, but the beer maker has made an effort this year to lower its leverage, Ferreira said in the Friday upgrade note. Concerns on the Street about AB’s debt are subsiding, he said. 

That — coupled with momentum in short-term earnings — should give AB a solid first quarter, the analyst said. 

Another small catalyst could be a reported potential IPO of AB’s Asia business, if it ends up occurring, Ferreira said. An Asia IPO improves the odds of ABI engaging in mergers and acquisition, he said. 

The positives for AB include the following, according to BofA: 

• 1.8-percent-plus organic volume growth.
• Dividends are “safe for now” with the big drop in government bond yields and AB having refinanced near-term maturities.

The challenges include the following, Ferreira said: 

• Beer volumes have been weak, with growth driven heavily by M&A synergies and emerging markets.
• Competitive pressures from Heineken N.V. HEINY and craft brewers.

BofA is Neutral on AB InBev because global beer volumes have stopped growing in the last five years.

“Mainstream beer remains in secular decline in both emerging markets and developed markets, and ABI still has 82 percent of its volumes exposed to the category,” Ferreira said.

Price Action

Anheuser Busch Inbev shares were up 2.06 percent at $86.74 at the time of publication Friday. 

Related Links:

BofA Bearish On Anheuser Busch, Says Volume Growth 'Remains Patchy'

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