UBS Has Budweiser Hangover, Downgrades AB Inbev After Q2 Print

The bullish case for Anheuser Busch Inbev NV BUD has come to an end after the beer company reported a strong second quarter report as it signals certain growth metrics may have peaked, according to UBS.

The Analyst

Nik Oliver downgraded AB InBev's European-listed stock from Buy to Neutral with a price target lifted from 81 euros ($90.73) to 94 euros ($105.29).

The Thesis

AB InBev, the parent company of global beer brands including Budweiser, showed 6.2% organic top-line growth in the second quarter and organic EBITDA growth of 9.4%, Oliver said in the Tuesday downgrade note. (See his track record here.)

Exiting the second-quarter print, there are three reasons to believe EBITDA growth peaked and the company's performance is "as good as it gets for now," the analyst said. 

First, the company faces a growing macro headwind in key global markets, including Mexico, he said.

Second, EBITDA growth during the second quarter was partly due to the realization of SAB cost savings, and the financial benefits will fade, Oliver said. 

Third, although not related to the business, shares of AB InBev are up 51% since the start of 2019, and it now trades at a premium to European-listed Staples, the analyst said. 

It's also important to note that AB InBev faces a higher degree of foreign exchange risk after selling assets in Australia, he said: the company is now more exposed to currency fluctuations than before if emerging market currencies weaken against the U.S. dollar.

Price Action

Shares of U.S.-listed Ab InBev were trading lower by 0.78% at $97.42 at the time of publication Tuesday.

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