Anheuser-Busch InBev stock (NYSE: BUD) has dropped 35% so far in 2020, while its rival Molson Coors stock (NYSE: TAP) has dropped 33% during the same time. If we compare the stock price trends of these two alcoholic beverage giants over recent years, we can see that BUD’s stock has decreased 52% from $112 at the end of 2017 to about $54 as on 20th July 2020. During the same period TAP’s stock shed 56% of its value. What is interesting to note is that TAP’s stock saw a larger decline despite the fall in its revenue being lower than that in the case of BUD. On comparing the historical performance and analyzing the future prospects, we believe that TAP could provide much superior returns to its investors compared to BUD in the near term, driven by better growth expectations of its P/E multiple which could also reflect TAP’s favorable shareholder return policy. Our dashboard Anheuser-Busch InBev vs. Molson Coors: Does The Stock Price Movement Make Sense? has the underlying numbers.
Sure, TAP’s revenues declined by 3.8% between 2017-2019, which was a lower decline compared to BUD, which saw a 4.6% revenue decline. However, TAP’s revenue size is one-fifth that of BUD’s revenues. At the same time, BUD’s net income margins are double that of TAP’s. BUD’s net income margins have increased from 16.7% in 2017 to 19.9% in 2019. Margins crashed in 2018 due to derivative losses, but recovered in 2019 due to lower interest expense. In comparison, TAP saw a slight increase in margin from 8.8% in 2017 to 9.3% in 2019.
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Additionally, the P/E multiple of both companies has seen a lot of volatility, though they have largely declined over recent years. BUD’s current P/E multiple of 12x is higher than TAP’s 8x. Though both companies saw a decline in their stock price and multiples, BUD’s multiple declined at a higher rate due to changes in its dividend policies. Despite TAP’s multiple being consistently lower than BUD over recent years, we believe it has a much better chance of seeing an uptick in its multiple, which could provide it an upside of around 25% in the near term. What could drive this? It is the favorable and consistent shareholder return policy of Molson Coors.
How Do Businesses Of BUD and TAP Compare?
Let’s have a closer look at the core business prospects. Though both companies are alcoholic beverage giants, Anheuser-Busch mainly sells different brands of beers across major continents, while Molson Coors manufactures, markets, and sells beer and other malt beverage products in the United States, Canada, Europe, and internationally.
With more consumers moving away from beer due to health issues, BUD and TAP have seen a decline in revenues over recent years. To counter this trend, the companies have now shifted their strategy toward increased premiumization. But the current pandemic induced lockdowns have affected global supply chains and consumer spending with pubs and restaurants being closed down, leading to expectations of lower revenues for both the companies in 2020.
However, over the coming weeks, we expect continued improvement in demand and subdued growth in the number of new Covid-19 cases in the U.S. compared to the rate seen in April-May to boost market expectations. Additionally, the gradual lifting of lockdowns is also giving investors confidence that developed markets have put the worst of the pandemic behind them. Following the Fed stimulus — which helped set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view, with investors now mainly focusing their attention on 2021 results. With the gradual lifting of lockdowns and easing of supply bottlenecks, 2021 is expected to be a year of healthy revenue growth for both companies.
What else differentiates these two companies is their shareholder return policy, BUD has announced a 50% reduction in its 2019 dividend announced earlier, in order to save cash during the pandemic. This is the second time in two years that the company has slashed its dividends. Also, the investors are unlikely to receive any dividend in 2020 as the company is concentrating on deleveraging amidst this crisis. On the other hand, Molson Coors has a consistent history of dividend payment at least over the last 5 years. Currently, BUD’s dividend yield stands at 1.55%, significantly lower than TAP’s 6.32% yield.
Thus, superior shareholder returns in 2020, despite the pandemic, is expected to lead to an uptick in Molson Coors’ P/E multiple, which could take the stock to about $45, thus reflecting a potential gain of 25% for its investors. In contrast, Anheuser-Busch InBev’s valuation by Trefis gives us a fair value of $55 per share for BUD’s stock, which is very close to its current market price.
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Dive into our comparative analysis of Anheuser-Busch vs Diageo to see how they compare. Along with a large alcoholic beverage giants, let’s also see how large non-alcoholic beverage biggies like PepsiCo, Coca-Cola, and Keurig Dr Pepper are coping during these tough times.