No. of Recommendations: 6
Just wanted to share my thoughts on Anheuser-Busch InBev (ABI), which I think might be an interesting "falling knife" stock to keep an eye on.
The Good Stuff:
Global Giant: ABI is the world's largest brewer, cranking out about a third of all beer globally. In 2023, they produced 584.7 million hectoliters—a slight dip of 1.7% from 2022. They're based in Belgium but have operations in over 100 countries.
Big Brands: They've got some heavy hitters like Budweiser, Corona, and Stella Artois under their belt. Though, keep in mind that in the U.S., the rights to Corona are owned by Constellation Brands, so ABI doesn't see the benefits from Corona's U.S. sales.
Pricing Power: One of their strengths is their global reach and ability to set prices. Their gross margins are around 54%. While that's down from their historical numbers, analysts think it'll bounce back up.
Digital Push: They've been talking up their BEES digital platform, which is bringing in significant revenue through B2B channels. Personally, I'm not sold on how much digital can really shake things up in the beer world, given the nature of the product.
The Not-So-Good Stuff:
Volume Declines: Beer volumes are slipping. Overall, volumes are down 2.4%, which is a big deal. China and Argentina are major contributors to this drop. Revenue is up, but that's mainly because they're hiking prices—not because they're selling more beer. Relying on price increases isn't a sustainable strategy in my book.
Changing Tastes: Beer consumption per person seems to be on the decline. People might be shifting to other drinks or cutting back on alcohol altogether.
Debt Load: Here's a biggie. ABI took on a ton of debt to buy SAB Miller back in 2016. Even now, eight years later, lot of debt($79 billion) remaining - that's a massive amount considering their market cap is around $100 billion. Their net debt to EBITDA ratio is about 3.4, and they're aiming to bring it down to around 2. Until then, they don't have a lot of wiggle room financially.
Buyback Signals: They've got a $2 billion buyback program going, which could mean management thinks the stock is undervalued. But given their focus on paying down debt, it's a bit of a mixed signal.
Recent Developments:
Health Warnings: On January 3, 2025, the U.S. Surgeon General issued an advisory linking alcohol consumption to cancer, marking it as a leading preventable cause. While some of us might think this won't change much for moderate drinkers, the rapid spread of info on social media could have a real impact on consumer behavior.
My Take:
I've been buying shares recently in the $52 range - already down 5% or so overall. Historically, ABI traded around a 20 P/E ratio, but now it's down to about 15. I'm holding off on buying more unless it dips to around $45.
There are risks, especially with the debt and shifting consumer habits, but there might be an opportunity for those willing to dive in.
What are your thoughts?
