Still Ambivalent on AmBev

We are keeping our Hold recommendation on Companhia de Bebidas das Americas, or AmBev (ABV - Analyst Report), which is the largest beverage company in South America, producing beer, soft drinks, sports drinks, iced tea and bottled water. The 2000 merger of Brazil's top two beverage firms, Companhia Cervejaria Brahma and Companhia Antarctica Paulista formed AmBev. The company is headquartered and operates primarily in Brazil.

AmBev has operations in Argentina, Chile, Venezuela, Uruguay, Bolivia, and Paraguay; it began expanding into Central America and Peru in 2003. The company is also the exclusive distributor of Pepsi beverage products in Brazil, though beer remains its core business.

Presently, AmBev is trading at 24.5x our 2008 EPS estimates, higher than the industry mean of 17.3x. Excluding the company's goodwill amortization, its 2008 P/E would be close to 15.4x, close to the industry median and the S&P average.

All considered, we are keeping our current Hold recommendation on ABV. In our opinion, ABV's valuation should be at 16.5x EPS estimate without the goodwill amortization, in line with the industry median. Our target price is $77.50.

Read the full analyst report on ABV