After an impressive rise of 90% since its March lows of this year, at the current price of $67 per share, Anheuser-Busch InBev stock (NYSE: BUD) looks fairly valued. BUD’s stock has rallied from $35 to $67 off the recent bottom compared to the S&P 500 which increased 59% during the same period. The stock was able to beat the broader market over the last 8 months, with the US government announcing a string of measures along with stimulus packages announced in other economies to keep businesses afloat. As the global economy opens up and supply constraints ease, volume sales are likely to rise in the coming quarters. Though the stock is still close to 20% below its December 2019 level, it is unlikely to see any major movement anytime soon due to slowdown in the beer segment even before the pandemic. BUD’s stock is expected to hover around its current level of $67 in the near-term. Our dashboard What Factors Drove -40% Change In Anheuser-Busch InBev Stock Between 2017 And Now? provides the key numbers behind our thinking.
Some of the drop in stock price between 2017-2019 is justified by the 4.6% decline in revenues during this period. BUD’s revenues decreased from $54.9 billion in 2017 to $52.3 billion in 2019 mainly due to changing consumer preferences, as health conscious consumers are moving away from beer. Margins remained very volatile during those two years due to heavy derivative losses. As revenues declined, the P/S multiple dropped from 4x in 2017 to about 3x at the end of 2019. The multiple crashed to below 1.5x in early 2020 following the outbreak of the coronavirus pandemic which led to shutting down of pubs and restaurants. The P/S multiple recovered over the last few months after stimulus measures were announced and currently stands at about 2.6x, still lower than its 2019 level. We believe the multiple is likely to remain around the current level in the near-term.
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Where is the stock headed?
The global spread of coronavirus led to lockdown in various cities across the globe, which affected industrial and economic activity. This took a toll on consumption and consumer spending, which was reflected in BUD’s Q2 2020 results where its revenue declined by 18% y-o-y. The widespread closing of restaurants and bars, plus the cancellation of sporting events, concerts, and nearly every other form of public entertainment across key markets led to a plunge in beer sales, thus affecting the stock price adversely.
However, there have been signs of lifting of the global lockdowns over recent months. As the global economy opens up and lockdowns are lifted in phases, consumer demand is slowly picking up. Any further recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. With the lifting of lockdown, reduction of supply bottlenecks is expected to help a company like BUD which has a global supply network to increase its volume. This was partially reflected in the company’s Q3 results, where BUD’s volume and revenues saw a y-o-y increase by 1.9% and 4%, respectively. The company is likely to see healthy revenue growth in FY2021 on a lower base of FY2020.
With investors’ focus having shifted to 2021, the stock has seen healthy growth over recent months in anticipation of strong revenue and margin growth. However, the recent surge in Covid positive cases in the US and Europe could prove to be an impediment in this growth path. If the rise in cases warrant a re-imposition of lockdowns, then the stock could see a sharp drop. Even in the absence of another lockdown, a major rise in the stock is unlikely after having increased more than 90% over recent months. BUD’s stock is likely to remain around its current level in the near term.
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