BUD Reaches Target, Now a Hold

Anheuser-Busch Companies, Inc. (BUD - Snapshot Report) is benefiting from industry consolidation of production and a growing international beer presence from the management’s astute acquisition strategy. The company has received an unsolicited buyout proposal for $65 per share in cash. The stock has rallied to our target; therefore, the recommendation has been lowered to a Hold.

Though there are concerns about higher commodity costs, especially energy, agricultural, and packaging costs, the results year-to-date demonstrate the management’s ability to implement productivity programs to offset the negative inflationary effects. The beer industry’s pricing environment remains favorable.

The competitive environment in the U.S. is likely to remain intense, thereby compelling the company to pursue a high level of promotional initiatives. The company’s business is seasonal, with approximately 55 percent of the revenues generated in the warm weather months of April through September. Thus, an unseasonably cool and/or wet summer throughout the U.S. and Canada could negatively impact sales.

Anheuser-Busch stock has traded in a P/E range of 16 to 27 over the last five years. At the current P/E of 21.5, the stock is in the middle of its historical trading range. The target of $65 is based on a 23 P/E on trailing 12 month earnings.

Read the full analyst report on BUD