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Here's Why AB InBev (BUD) Possesses a Robust Upside Story

Zacks Equity Research
·4-min read

Anheuser-Busch InBev SA/NV BUD, alias AB InBev, displays a remarkable upside story despite the looming effects of the coronavirus pandemic. The company’s growth story has been mainly tied to the strength in the off-premise channel and premium brands as well as investment in B2B platforms, e-commerce channels and digital marketing in the past few months. These not only boosted investor confidence in the stock but also aided its results in second-quarter 2020.

Notably, the Zacks Rank #2 (Buy) company has a market capitalization of $114 billion. In the past three months, it has gained 15% compared with the industry’s growth of 8.9%. Moreover, it has comfortably outpaced the Consumer Staples and the Zacks S&P 500 composite’s growth of 6.6% and 9.2%, respectively, during the said period.

 

 

Why AB InBev Should Retain the Momentum

AB InBev is expected to continue its resilient volume trend due to the gradual reopening of on-premise channels across many countries. Though overall volume declined year over year in the second quarter, volume trends improved on a month-to-month basis. Further, strength in the off-premise channel and premium brands remain encouraging.

Despite the impacts of the COVID-19 outbreak, the company’s commercial strategy has been aiding performance in the United States. In the second quarter, US revenues declined 5.9%, while revenue per hectoliter (hl) improved 0.2%. Revenue per hl was aided by its revenue-management initiatives, partly offset by on-premise closures, which hurt sales in brewpubs.

Additionally, the company’s core portfolio in the United States delivered market share gains of 90 basis points (bps) in the second quarter. This was driven by the launch of Bud Light Seltzer earlier this year, which is its top innovation in the category by volume in 2020.  Further, an uplift of beer sales in the off-premise channel is aiding sales trends in the United States.

AB InBev has been investing in new capabilities for several years to better connect with customers and consumers by leveraging technology such as B2B sales and other e-commerce platforms. These platforms remained more relevant amid the coronavirus pandemic as consumers were confined to their homes.

Notably, all markets witnessed dramatically accelerated growth trends for digital sales, e-commerce and online marketing in recent months. Accelerated growth in its e-commerce channel was attributed to the direct-to-consumer platforms and its partnerships with major global online retailers.

Additionally, consistent investments in owned and third-party e-commerce, including more than 20 direct-to-consumer ventures globally, position the company to lead in online sales.

In the second quarter, its owned e-commerce beer store portfolio in Europe more than doubled from the year-ago quarter. Moreover, it witnessed accelerated growth for online sales in the beer category through Zé Delivery in Brazil. To connect with customers amid the crisis, the company invented new proprietary platforms like Tienda Cerca, which is a free online delivery service used by neighborhood shops in eight markets in Latin America.

Apart from this, the company is increasing the power of its brands to connect with consumers, while they stay at home. For this, it developed unique activities like Michelob Ultra’s at-home fitness programs in the United States, Budweiser’s celebration for the return of the English Premier League in the U.K. and Brahma’s virtual country music concert series in Brazil.

We believe that these solid fundamentals are likely to keep the company’s existing momentum in the days ahead.

Other Stocks to Consider

The Boston Beer Company, Inc. SAM delivered an earnings surprise of 26.1%, on average, in the trailing four quarters. It sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Brown-Forman Corporation BF.B delivered an earnings surprise of 8.2%, on average, in the trailing four quarters. It currently has a Zacks Rank #2.

Monster Beverage Corporation MNST presently has a Zacks Rank #2 and a long-term earnings growth rate of nearly 12%.

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BrownForman Corporation (BF.B) : Free Stock Analysis Report
 
AnheuserBusch InBev SANV (BUD) : Free Stock Analysis Report
 
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