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Bear of the Day: AB Inbev (BUD)

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In this day and age of “If you can’t beat em, join em” nothing surprises me. I mean, Kevin Durant moving over to the Golden State Warriors is nothing compared to AB Inbev (BUD - Free Report) making a play for SABMiller. Recently AB Inbev upped their offer to make up for a weakened British Pound post-Brexit. The offer now stands at 45 Pounds per share. I couldn’t help point out the hilariousness in one of my Trending Stocks videos.

I’m not bearish on InBev in the short term because of the deal. I’m bearish because it’s a Zacks Rank #5(Strong Sell) with a Value Style Score of F and a Growth Style Score of D. That tells me the valuations are a little out of whack and the estimate revisions haven’t been moving in the right direction.

Over the last sixty days two analysts have dropped their earnings estimates for the current year, while a single analyst has done so for next year’s numbers. The bearish sentiment has dropped the current year Zacks Consensus Estimate from $4.21 to $3.98. Looking at next year’s numbers, consensus has gone from $4.95 down to $4.42. The bearishness follows up on a drastic quarter for the company where EPS came in at 51 cents versus estimates calling for 87 cents.

The stock has been surprisingly resilient in the face of these downward earnings estimates. Since bottoming out just above $100 in October, the stock has approached $130 on several occasions. The most recent push to the highs stalled out just a few weeks ago. A bounce here in the short-term off support near $122 could send the stock towards $130 again but I’d be careful around earnings with so many negative revisions.  

Eventually the fundamentals win out. Stocks tend to track with their earnings and if analysts are right about dropping their estimates, then this stock could be setting up for disaster in the intermediate term. If you’re bent on getting exposure to this industry, you should look at Zacks Rank #2(Buy) Constellation Brands (STZ - Free Report) . Several stocks in the industry are Zacks Rank #3 (Hold) stocks, including Boston Beer Company (SAM - Free Report) .

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Anheuser-Busch InBev SA/NV (BUD) - free report >>

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