Light at the End of the Tunnel for Anheuser-Busch (BUD) Stock?

Anheuser-Busch InBev SA/NV (BUD), a leading multinational brewing company once hailed as one of the largest firms within its sector, is widely recognized for housing popular brands such as Stella Artois, Beck's, and Budweiser in its extensive portfolio.

The corporation has a notable history of collaborating with celebrities and social media influencers to enhance its beer promotions. However, its recent partnership with the prominent transgender influencer Dylan Mulvaney sparked both condemnation and commendation from various factions, thus generating significant media attention.

This alliance became embroiled in a heated controversy tied to a Bud Light campaign focused on the transgender community. Consequently, amid the media fuss, the brewing giant's stock declined about 20% in May. Fanning the flames of their troubles, BUD’s layoff of more than 300 U.S. employees accentuated the growing challenges faced by the company.

The Controversy and Its Impact

BUD partnered with Mulvaney to amplify its “Easy Carry Contest,” offering customers a chance to win a grand prize of $15,000 for sharing videos of themselves carrying as many cans of BUD's beer as possible. To promote the contest, Mulvaney posted a sponsored video on TikTok in April 2023, featuring a Bud Light can adorned with her face, gifted by the company upon the first anniversary of her public declaration as transgender.

However, this instigated severe criticism from conservative anti-trans groups, who perceived this move as Bud Light pushing a certain "agenda." Consequently, calls for a boycott against the beer brand erupted.

Bud Light’s share of the U.S. beer revenue had plummeted to 8.9% by the week ending on September 9. Likewise, Bud Light sales witnessed a staggering decline of roughly 30% in both volume and dollar worth in the month leading up to September 9, compared to the prior-year period.

Moreover, BUD witnessed a plunge in U.S. revenue in the second quarter, primarily driven by the social media-led boycott. The brewer’s second-quarter revenue in the U.S. saw an alarming 10.5% decline, while operating profits experienced a nearly 30% decrease.

The boycott's impact stretched far beyond the immediate sphere, impacting BUD's primary operations and creating ripple effects across its associated enterprises such as breweries, distributors, and labor force. An unfortunate repercussion was the reported bombing threats targeted at select breweries, accompanied by incidents of employee harassment.

The backlash grew so extensively that it prompted HSBC to downgrade BUD's stock. In June, Mexican lager Modelo Especial dethroned Bud Light, claiming the title of America's favorite beer, a position Bud Light had defended for over two decades.

Nevertheless, enduring these challenges, BUD enjoyed a surge in global profits due to price increases and strengthening sales in markets outside the U.S. Its operational presence spread across various international markets facilitates business diversification and alleviates the effects of adverse publicity.
Its leading portfolio contributed to a mid-single-digit revenue rise, somewhat counter-balancing the declining Bud Light sales in the U.S. This was propelled by a double-digit growth occurrence in South Africa and Colombia.

Several analysts suggested that the stock’s depreciation may be an overreaction, proposing that the company could recover even amid the backlash. In alignment with this view, Bank of America upgraded its rating on BUD, positing that the brewing titan boasts a diversified brand portfolio, widespread geographic presence, and potential for margin expansion.

In the prevailing environment, Bank of America labeled the brewer a "relatively defensive stock," projecting positive earnings growth for the company in 2023. Following the upgrade to a 'Buy' from a 'Neutral' standing, BUD's stock prices ascended approximately 4%.

With BUD recording impressive revenue figures exceeding $57 billion last year, it is challenging to predict how much boycotts alone can substantially disrupt its financial stability. The following key factors could notably sway the future trajectory of the brewing behemoth:

Mixed Financials

During the fiscal second quarter that ended June 30, 2023, BUD’s revenue rose 2.2% year-over-year to $15.12 billion. Its gross profit grew 1.3% from the prior-year quarter to $8.10 billion.

However, the company’s normalized EBITDA declined 3.7% from the year-ago quarter to $4.91 billion. Also, underlying profit attributable to equity holders of BUD and earnings per share fell 1.1% and 1.4% year-over-year to $1.45 billion and $0.72, respectively.

Mixed Valuation

BUD’s forward EV/Sales and Price/Sales of 3.12x and 1.74x are 84.9% and 62% higher than the industry average of 1.69x and 1.07x, respectively. However, its forward non-GAAP PEG multiple of 1.56 is 27.7% lower than the industry average of 2.15. Also, its EV/EBITDA multiple of 9.31 is 18.7% lower than the industry average of 11.45.

Robust Profitability

BUD’s trailing-12-month gross profit and levered FCF margins of 54.21% and 11.84% are 64.5% and 247.4% higher than the industry averages of 32.96% and 3.41%, respectively. Its trailing-12-month cash from operations of $12.71 billion is significantly higher than the industry average of $457.15 million.

Growing Interest of Smart Money

A notable activity around BUD's shares has been observed, indicating a climate brimming with significant trading interest. The ongoing boycotts seem to have fallen short of nullifying the belief in the beer giant’s potential recovery.

Confirming this outlook, the Bill & Melinda Gates Foundation Trust, under the stewardship of business titan Bill Gates, secured 1,703,000 shares of BUD. This acquisition is estimated at about $95 million and asserts renewed faith in the brand’s value.

Notably, several institutions have recently modified their BUD stock holdings. Of the 567 institutional holders, 211 have increased their positions in the stock. Moreover, 70 institutions have taken new positions (4,737,413 shares).

Price Performance

BUD’s shares have plunged more than 20% over the past six months but gained more than 15% over the past year. The stock also trades below its 50-day and 100-day moving averages of $56.47 and $56.80, respectively, indicating a downtrend.

However, Wall Street analysts expect the stock to reach $67.56 in the next 12 months, indicating a potential upside of 27.5%. The price target ranges from a low of $57.59 to a high of $76.

Mixed Analyst Estimates

For the fiscal third quarter ending September 2023, BUD’s revenue and EPS are expected to come at $15.98 billion and $0.85, up 5.9% and 4.5% year-over-year, respectively.

For the fiscal year ending December 2023, BUD’s revenue is expected to increase 6% year-over-year to $61.28 billion, whereas its EPS is expected to decline 3.8% year-over-year to $3.03.

Bottom Line

In an unusual turn of events, the latest controversy involving social media influencers associated with BUD has reportedly sent ripples through its stock prices. The handling of this incident by the beverage company and the resulting negative media coverage has left investors perturbed about potential harm to its corporate image. The boycotts engulfing BUD brands only raise concerns about a possible negative hit on revenue.

Another industry development provoking potential unease for BUD's future market position is the impending entry of Tilray Brands into the beer market, which could further challenge BUD's financial foothold.

The collateral damage from the backlash notably seems concentrated within developed markets like the U.S. However, analysts indicate that the sell-off wave may have peaked, adding that the overall disturbance could have limited repercussions outside U.S. borders. Many specialists see the decline in BUD's stock valuation as an attractive entry point for prospective investors.

Signs of continuing faith in the beleaguered beer company's resilience are reflected in Bank of America’s upgrade during the turmoil and noteworthy investments made by institutions. Such actions underline hint at BUD's perceived capability to recover and enhance its market value over time.
However, considering it tepid price momentum, mixed financial indicators, and analyst estimates, it might be in investors' best interest to wait for a more opportune entry point in the stock.

Potential Lawsuit Could Spell Trouble for Anheuser-Busch InBev (BUD); Check Out These 2 Stocks Instead

In a piece on April 30, we discussed how an ill-fated decision by Anheuser-Busch InBev SA/NV (BUD) to feature trans influencer Dylan Mulvaney in an ad campaign to celebrate the end of March Madness and promote a sweepstakes contest for its brand, Bud Light, stirred up controversy and outrage from outspoken conservatives over transgender rights.

Earnest efforts to contain damage and restore its brand image included parting ways with two top marketing executives who supervised the ad campaign and releasing an ad featuring its signature Clydesdale horse mascot to invoke patriotic sentiments in its patrons.

However, amid widespread calls for a boycott, Bud Light has seen its sales plummet by about 25% from the previous year, according to data from consulting firm Bump Willams. Consequently, the beer maker lost its top spot in the U.S. beer market last month to Modelo Especial by Constellation Brands, Inc. (STZ), and its parent BUD saw its shares fall from roughly $66 to $58.

While BUD believed that it might have seen the worst and that the backlash would eventually blow over, with 2024’s race to the White House underway, given the recent noise surrounding the beverage company, it ended up courting further unwanted attention.

Florida’s Governor, Ron DeSantis, who is also running for the Republican presidential nomination while riding a wave of anti-"woke" rhetoric, has been involved in a legal tussle with The Walt Disney Company (DIS) for over a year over alleged “targeted campaign of government retaliation” after the company’s former CEO spoke up about the state's classroom (so-called "Don't Say Gay") education bill.

To add fuel to his efforts to hold accountable corporations and other entities he deems are pushing “woke” progressive political ideology, the governor has now trained his guns on BUD.

DeSantis, who oversees the board of the Florida Pension Fund as a trustee along with the state’s attorney general and chief financial officer, both also Republicans, has accused the company of neglecting its stakeholders and pensioners by associating with “radical social ideologies.”

By ordering his government to investigate whether BUD breached its duties to shareholders, the conservative politician could potentially bring a derivative lawsuit against the company on behalf of the fund's shareholders.

In his letter to Lamar Taylor, the interim director of the State Board of Administration, the state agency that manages Florida’s retirement funds for public workers, DeSantis wrote, “We must prudently manage the funds of Florida’s hardworking law enforcement officers, teachers, firefighters, and first responders in a manner that focuses on growing returns, not subsidizing an ideological agenda through woke virtue signaling.”

Since, in the words of DeSantis, “All options are on the table and woke corporations that put ideology ahead of returns should be on notice,” BUD’s time in turbulence seems unlikely to end anytime soon.

The company responded, “Anheuser-Busch InBev takes our responsibility to our shareholders, employees, distributors, and customers seriously.” The spokesperson further added, “We are focused on driving long-term, sustainable growth for them by optimizing our business and providing consumers products to enjoy for any occasion.”

While DIS’ current CEO, Bob Iger, has expressed his determination to back and persist with his company’s legal challenge, a stance that has even been appreciated by Nike’s CEO, it remains to be seen how BUD responds to being in political crosshairs and under legal fire.

According to experts, changing demographics suggest that Bud Light’s inclusive ad campaigns make good sense in the long run and are expected to keep the brand in what, according to BUD’s CEO, is “the business of bringing people together over a beer.”

However, the soup the brand has landed in might warm up the prospects of two other beverage stocks. While the “woke-free” beer being brewed by “Conservative Dad” may not make the cut, here are some contenders to look out for.

Heineken N.V. (HEINY) is a beverage company headquartered in Amsterdam, Netherlands, that is involved in brewing and selling beer. Its offerings consist of beer, soft drinks, and cider. The company operates through five segments: Africa, Middle East & Eastern Europe; Americas; Asia Pacific; Europe and Head Office; and Other/eliminations.

On May 31, HEINY announced the completion of the purchase of its shares worth €333 million ($368.35 million) from FEMSA as part of the sell-down offering by the latter. The purchase, which was funded from HEINY’s existing cash resources and credit facilities, could increase the intrinsic value of the holdings of existing shareholders.

On April 26, HEINY announced the completion of its acquisition of Distell Group Holdings Limited (Distell) and Namibia Breweries Limited (NBL), which have been combined with HEINEKEN South Africa into a new HEINEKEN majority-owned business to capture significant growth opportunities in Southern Africa.

The combined businesses will be known as ‘HEINEKEN Beverages. The rebranding reflects the new company’s multi-category portfolio and commitment to delivering high-quality beverages to consumers across the continent.

Ahead of its July 31 earnings release, HEINY’s revenue for the fiscal second quarter is expected to increase by 33% year-over-year to $9.39 billion. For the entire fiscal year, both revenue and EPS are expected to increase by 15.1% and 16.5% year-over-year to $35.28 and $2.91, respectively.

Ambev S.A. (ABEV), a subsidiary of Interbrew International BVT, is a beverage company headquartered in Sao Paolo, Brazil, that distributes and sells beer, carbonated soft drinks (CSDs), and other non-alcoholic and non-carbonated (NANC) beverages across the Americas. The company operates through three geographical segments: Latin America North; Latin America South; and Canada.

On April 25, ABEV’s Board of Directors approved and homologated the issuance of new common shares as a result of the exercise, by certain beneficiaries, of stock options, within the scope of the company’s Stock Option Plan. This reflects the investors’ confidence in the company’s prospects.

Consequently, on May 18, ABEV announced a share buyback program for the repurchase of shares issued by the company up to the limit of 13,000,000 common shares with the primary purpose of covering any share delivery requirements contemplated in the company's share-based compensation plans or to be held in treasury, canceled, and/or subsequently transferred.

Ahead of its earnings release on August 3, analysts expect ABEV’s revenue to increase by 17.2% year-over-year to $4.03 billion. The company’s revenue is expected to grow by 15.9% year-over-year to $17.73 billion for the entire fiscal year. Moreover, the company has surpassed consensus EPS estimates in each trailing four quarters.