Why Is Anheuser-Busch InBev Stock Down 10%?

Anheuser-Busch InBev stock (NYSE: BUD) has barely seen a 10% rise in value since early January 2023 – rising from levels of $58 then to $63 now – vs. an increase of 50% for the S&P 500 over this period. In comparison, its peer – Diageo stock (NYSE: DEO) – has seen a 20% fall over this period. The rise in BUD stock can primarily be attributed to an 8% rise in its revenue per share, while the company’s P/S ratio has remained stable at around 2.1x revenues over this period.

Notably, the performance of BUD stock with respect to the index in recent years has been quite volatile. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics. But how could BUD stock possibly regain its footing and rise again? Let’s delve into the company’s revenue prospects to begin with.

Anheuser-Busch InBev’s revenue has risen 3.7% from $57.8 billion in 2022 to $59.9 billion in the last twelve months. This can largely be attributed to a 9% fall in sales in North America, while Middle Americas, Latin America, EMEA, and Asia Pacific saw sales rise. The decline in North America can primarily be attributed to the backlash to its brief partnership with a transgender influencer to promote Bud Light beer. On the positive side, its adjusted net income margin has remained stable around 10% since 2022, aiding its earnings growth.

The company has seen some rebound in North America lately, with sales declining at a moderate pace, down 1.3% in Q2 this year, compared to around a 9% fall in the prior-year quarter. Its volumes have also trended marginally lower in the previous quarter, down 0.8% y-o-y. Although the company posted revenue growth, it fell short of the street estimates. However, the company managed to beat on earnings with better profit margins.

Looking forward, we expect the sales to rise at a mid-single-digit average annual growth rate over the next three years. With the interest rate cut cycle underway, the consumer sentiment is expected to improve in the U.S. and China. While the impact of lower rates to flow through the economy may take some time, the consumer confidence should improve going forward owing to controlled inflation. This should bode well for Anheuser-Busch InBev. Still, its stock is already trading at around 18x forward earnings, versus its average P/E ratio of 19x over the last two years, we think there is only a little room left for growth. We estimate Anheuser-Busch InBev’s valuation to be $70 per share, reflecting just 10% upside from its current levels of $63.

While BUD stock looks like it has little room for growth, it is helpful to see how Anheuser-Busch InBev peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 9/26/2024
[2] Cumulative total returns since the end of 2016

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