Will AB InBev's Dismal Show on Bourses Continue in 2018?

Anheuser-Busch InBev SA/NV BUD, commonly known as AB InBev has failed to impress investors lately owing to its dismal performance. The company is battling soft volumes, higher cost of sales, adverse currency impacts and consumers’ changing preferences.

A look at AB InBev’s share price reveals that it has lost 6.3% in the past three months, as against the Beverages – Alcoholic industry’s growth of 2.3%. Currently, the industry ranks in the top 46% (118 out of 256) of the Zacks classified industries. The stock has also underperformed the broader Consumer Staples sector’s gain of 3.2%. In fact, a VGM Score of D further raises concerns for this Zacks Rank #4 (Sell) stock.

 

 

What’s Troubling the Stock?

AB InBev has been disappointing investors with its dismal earnings surprise history. Apparently, it had delivered seventh consecutive negative earnings surprise in third-quarter 2017. In the trailing four quarters, the company reported an average negative earnings surprise of 28.4%. Moreover, revenues missed estimates for the second consecutive quarter.

Results in the quarter were somewhat hurt by volume declines, escalated cost of sales and revenues decline at Budweiser brand. Unfortunately, management believes that cost of sales will continue to rise owing to the lingering currency woes and growth of premium brands. Management also anticipates that some of its core regions will remain volatile. These factors are likely to dent the company’s performance.

In fact, analysts are becoming bearish on the stock as evident from the downtrend in the Zacks Consensus Estimate. The estimates of $4.22 for 2017 and $5.18 for 2018 have moved down by a penny and 4 cents, respectively, in the past 30 days.

Further, consumers’ shifting preference toward booming craft spirits in the United States might take a toll on the growth of the company’s Budweiser brand. Apparently, in the last quarter, Budweiser brand’s revenues fell 2.2%.

Also, the beer and beverage industry remains susceptible to unfavorable changes in taxes. Thus, any rise in excise taxes or indirect taxes might weigh on AB InBev’s revenues and margins.

Can AB InBev Return to Growth Trajectory?

Armed with a robust brand portfolio and solid geographic reach, AB InBev keeps introducing near-beer alternatives, along with no- and low-alcohol beers to address the evolving consumers’ preference. Also, the company is poised to gain a dominant share in the global beer market from SABMiller’s buyout.

We also expect the company to benefit from its constant efforts of expansion in the craft beer space, given the rising demand for this beer category. Though the expansion might take time, we believe that AB InBev will return to its growth trajectory backed by its strength of Budweiser brand and robust initiatives.

Stocks Gaining From Alcohol Industry Trends

The alcohol market in the United States has been on an expansion spree, owing to strong demand. Also, the alcohol industry is poised to benefit from the holiday season and a buoyant U.S. economy. Markedly, the Alcohol industry recorded 23% growth over a year, ahead of the 19.6% upside of the S&P 500 market.

Here are some alcohol stocks that have outperformed the industry and hold a favorable Zacks Rank. These are Brown-Forman Corporation BF.B sporting a Zacks Rank #1 (Strong Buy), and Constellation Brands, Inc. STZ and The Boston Beer Company, Inc. SAM carrying a Zacks Rank #2 (Buy), each. You can see the complete list of today’s Zacks #1 Rank stocks here.

We note that shares of Brown-Forman, Boston Beer and Constellation Brands have moved up 25.9%, 22.3% and 13.2%, respectively, in the last three months.

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Brown Forman Corporation (BF.B) : Free Stock Analysis Report
 
Constellation Brands Inc (STZ) : Free Stock Analysis Report
 
Anheuser-Busch Inbev SA (BUD) : Free Stock Analysis Report
 
Boston Beer Company, Inc. (The) (SAM) : Free Stock Analysis Report
 
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