Beer brewing behemoth, Anheuser-Busch InBev SA/NV (BUD - Free Report) , alias AB InBev, has recently been in the limelight not only for its massive merger with close rival SABMiller Plc but also due to its string of dismal earnings performance and the consequent slump in stock price.
AB InBev is on track with the integration of the recently acquired brewing giant SABMiller. The company is currently in the process of divesting SABMiller assets that it promised as part of the merger deal. Despite the divestitures, this combined mega-brewing company still holds the top spot in the beer industry, controlling about one-thirds of the global beer market. This behemoth accounts for nearly 30% of global beer sales and 46% of global beer profits.
However, AB InBev has lagged the Zacks Consensus Estimate in each of the trailing four quarters, delivering a negative earnings surprise of 33.2% in the same period.
Further, AB InBev’s stock performance has been quite disappointing in the last six months. The stock has declined 13.9% in the past six months, wider than the Zacks categorized Beverages–Alcohol industry's fall of nearly 8% in the same period.
What’s Behind the Slump?
In the last reported fourth-quarter 2016, the company’s results were primarily hurt by a disappointing Brazilian performance, which in turn was marred by difficult consumer trends, tough year-over-year comparisons and unfavorable currency movements.
Additionally, it provided dismal guidance for 2017. While the company expects revenues to grow in 2017 backed by robust growth of global brands and commercial plans, it projects some of its key markets to remain volatile. Further, AB InBev anticipates cost of goods sold per hl to increase in the low-single digits range, considering adverse currency movements and growth in premium brands. Also, SG&A expenses are expected to be flat with 2016 level.
Consequently, estimates have declined considerably in the last 30 days. The Zacks Consensus Estimate has dropped by a significant 36 cents to $4.58 per share for 2017 and by 20 cents to $5.21 per share for 2018.
Further, the current Zacks Consensus Estimate of 43 cents per share for first-quarter 2016 reflects 15.7% decline from the prior-year quarter. However, analysts polled by Zacks expect revenues of $12.30 billion for the first quarter, exhibiting nearly 30.8% growth from the year-ago quarter.
Moreover, the company’s valuation looks pretty stretched. The company has a trailing 12-month PE ratio of 39.56, which compares unfavorably with the industry’s PE of about 35.41. The company’s PE ratio combined with the Value Score of “D” suggests there is little scope of upside for the stock.
AB InBev currently carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the same industry include Tsingtao Brewery Company Limited (TSGTY - Free Report) , Ambev S.A. (ABEV - Free Report) and Heineken N.V. (HEINY - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Tsingtao Brewery, with a long-term earnings growth rate of 7.8%, has surged 16% in the past six months.
Ambev has gained nearly 18% in the last three months. Moreover, it has a long-term earnings growth rate of 7.2%.
Heineken has jumped 15.2% in the last three months. Further, the company has a long-term earnings growth rate of 7.6%.
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