Does Budweiser’s Backlash Create Opportunity?

Budweiser – the world’s biggest beer company and owner of dozens of globally-recognized brands – has been in hot water recently. 

In an effort to present itself as more inclusive, Bud Light sent transgender influencer Dylan Mulvaney a handful of beers. In turn, Mulvaney created a video and images featuring the beer.

A PR crisis ensued as a the storied beer company waded into a political firestorm.

The company backtracked, but only after it plenty of folks made their displeasure known.

Yet, you wouldn’t know it by looking at the company’s share price.

From Chick-Fil-A to Disney, J.K. Rowland to the NFL, the most vocal detractors have little influence.

When you have a good product, most people simply don’t care.

As investors, all we care about is the business performance and the outlook.

And apparently, so do financial pros who started looking into shares of Anheuser Busch Inbev (BUD) at a record clip even when earnings weren’t present.

The problem is controversy doesn’t always lead to opportunity, because Inbev has bigger problems than one bad campaign.

Anheuser-Busch Inbev’s Business

Since its formation in 2004, Anheuser-Busch InBev (AB InBev) has been one of the world’s largest beverage companies, growing to encompass over 500 brands ranging from beer and cider to lemonade and energy drink.

InBev acquired Anheuser Busch in 2008, creating a global powerhouse able to offer consumers across numerous countries access to world-renowned beer brands, including Budweiser, Michelob, and Stella Artois.

Today, the company boasts an incredibly diverse geographic footprint with operations in nearly every continent.

Source: BUD Q1 Investor Presentation

As the company matures, it’s focused on a multi-prong growth strategy that includes innovation, reinforcing core brands, and expanding through premium brands as well as non-beer and non-alcoholic beverages.

Source: BUD Q1 Investor Presentation

Financials

Source: Stock Analysis

Growth isn’t easy for a company Inbev’s size.

In the company’s latest quarterly results, total volumes increased 0.9%, with own beer up 0.4% and non-beer up 3.6%.

The company’s average 5-year growth is a measly 0.8%.

Coupled with decreasing margins, shares of Inbev have fallen steadily from their peak in 2016.

Forecasts don’t paint a pretty picture with trailing price-to-cash flow of 9.7x worsening to 12.7x next year.

And despite $10 billion in cash, the company holds a stupid high total debt of $80 billion, costing the company nearly $4 billion a year in interest payments.

Valuation

Source: Seeking Alpha

A quick glance at these valuation metrics would make anyone want to take competitor Molson Coors (TAP) over BUD.

TAP trades at a cheaper valuation in every category compared to BUD and most categories compared to Ambev (ABEV), the Brazilian arm of Inbev.

Growth

Source: Seeking Alpha

Unfortunately, most large brewing companies lack growth.

TAP has grown revenues at a slower rate than BUD. The Boston Beer Company (SAM) has had decent growth. And it’s roughly twice as expensive in most valuation terms as BUD and TAP. Plus, it’s delivered pretty solid free-cash-flow growth.

Profitability

Source: Seeking Alpha

However, when it comes down to running a profitable brewery, no one does it better than BUD. It boasts the best margins across and up and down the board, not to mention returns in most categories.

Our Opinion 5/10

Consumer defensive names are expensive, whether it’s BUD or Coca-Cola (KO). We’re not a fan of overpaying for safety.

If BUD were to revisit its 2022 lows closer to $40 per share, that might make it interesting.

But with lackluster growth and no real plans to stimulate sales, we’d rather go shopping elsewhere.

• Ford’s Bold Moves Stir Controversy
• Take Your Investments to the Next Level With The Alt
• The Best ETF for the Energy Boom
• American Knocks Off United as Top TrackStar Airline Search