Are Tougher Days Ahead For Anheuser-Busch InBev After 32% Volume Drop In April?

Despite Anheuser-Busch InBev’s stock (NYSE: BUD) price being 33% lower than the stock price at the beginning of the year, we do not believe the stock has a major upside from its current price of $55. The key is that BUD’s stock has recovered 57% since mid-March 2020 (when it had touched its all-time low of $35) and any further upside would likely be possible only after some signs of abatement of the current coronavirus crisis. Our dashboard What Factors Drove -51% Change In Anheuser-Busch InBev Stock Between 2017 And Now? provides the key numbers behind our thinking, and we explain more below.

Some of the drop of the last 2 years is justified by the roughly 4.6% decline seen in Anheuser-Busch InBev’s revenues from 2017 to 2019. This was offset by a 14.8% rise in net income on the back of higher margins (margins dropped sharply to 8.2% in 2018 due to significant mark-to-market derivative losses reported). However, earnings growth, on a per share basis, was slightly lower at 13.8%, driven by almost a 1% rise in shares outstanding.

Finally, BUD’s P/E ratio declined from 28x at the end of 2017 to 18x at the end of 2019. While the P/E multiple has declined further in 2020 and now stands at 12x, given the current crisis situation and lower demand, the multiple is likely to remain subdued in the near term compared to levels seen in the past few years.

Effect of Current Crisis

The global spread of coronavirus has led to a slowdown in industrial and economic activity, thus affecting consumer spending power. Lower consumption would lead to lower demand for food and beverages, as partial employment becomes widespread. Additionally, as Anheuser-Busch has global operations spreading across continents, the lockdown in all major cities has affected the supply chain of the company, leading to a drop in shipments. The impact of the crisis was partially felt in Q1 2020 when total volume declined 9.3% and revenue declined 5.8% year-on-year. Q2 2020 is expected to be much worse (reflecting full-impact of the crisis), as is already evident in the company’s April 2020 volume which declined 32% on a y-o-y basis.

If there is no clear evidence of containment of the virus at the time of Q2 earnings announcement, we believe the stock could decline back to below $50 levels. However, if there are indications of abatement, then the stock is likely to remain elevated at around $55-$56 levels, with a forward P/E multiple moving up to 2019 level of over 18x. Trefis has a fair price estimate of $55 per share for Anheuser-Busch InBev’s stock.

Our dashboard forecasting U.S. COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. The complete set of coronavirus impact and timing analyses is available here.

Along with a large alcoholic beverage giant like Anheuser-Busch, let’s see how large non-alcoholic beverage giants like PepsiCo, Coca-Cola, and Keurig Dr Pepper are coping during these tough times.

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