Anheuser-Busch InBev Stock Could Bring You Double-Digit Returns
Beer is boring. That’s Wall Street’s view—if the performance of the stock of the world’s biggest brewer, Anheuser-Busch InBev , is any guide. After a 24% drop year to date to $84 per share, the shares are back to where they were six years ago. Their all-time high was $133, hit in September 2016.
Still, the market’s dislike of AB InBev could offer an opportunity for double-digit returns for patient, income-oriented investors, making it our choice for Barron’s Pick, which showcases a stock pick every Wednesday morning on Barrons.com.
North American beer volumes, with the exception of craft and premium beers, have been flat to down for years, says Consumer Edge Research’s Brett Cooper. In the first half, AB InBev’s North American volumes were down 4.5%. The bad news, good news: AB InBev got 72% of its volume from emerging markets last year, a business hurt by economic woes and a strengthening dollar.
The long run looks brighter. AB InBev has a dominant position in markets that should grow long term. The company has strong management and unparalleled scale and efficiency, and has been reducing costs—$2.5 billion this year. Its game plan—growing sales organically while deleveraging—may not be sexy, but should provide a long-term edge. “We expect low- to mid-single-digit revenue growth translating into mid- to high-single-digit EPS growth,” says Cheviot Value Management portfolio manager Darren Pollock.
Then there’s the dividend, which boasts a 5.5% yield. Add that to stronger earnings and you get double-digit annual gains over the next several years. True, with $109 billion in debt, leverage is a concern. But as Pollock says, even with a dividend cut, AB InBev prospects look stout.