Barclays Turns Bullish On AmBev's Story

AMBEV S A/S ADR ABEV, a Brazilian brewing company owned by Anheuser Busch Inbev NV (ADR) BUD, reported strong quarterly results Thursday.

The Analyst

Barclays analyst Benjamin Theurer upgraded AmBev from Equal-weight to Overweight and lowered the U.S.-based ADR price target from $7 to $6, citing the slightly weaker Brazilian real.

The Thesis

AmBev's slightly better-than-anticipated results and improving outlook turned Barclays upbeat on the company's story, Theurer said in the upgrade note. (See the analyst's track record here.)

Theurer highlighted volume growth — especially in Brazil — as a positive in Q2, and said profitability was pressured due to higher marketing expenses at the World Cup.

Expenses should normalize in the coming quarters as World Cup-related expenses leave the equation, which should lead to improved margins in the back half of 2018, the analyst said.

An expected price hike in the coming months and an improvement in volumes will likely lead to continued improvement in AmBev's profitability, Theurer said.

The analyst sees the company's focus on premium beers as an additional avenue for profitable growth.

"While short term we continue to expect certain margin pressure to persist, we clearly see significant potential for profitability to return to pre-recession levels in Brazil, as AmBev should further consolidate itself as leader in the Brazilian beer and CSD market."