Anheuser-Busch InBev finally has something to toast
It has taken several years, but the giant merger between the two brewers is starting to pay off.
Last year, Anhueser-Busch InBev's (BUD) U.S. volumes grew for the first time since 2008 because of strong sales of Bud Light Platinum and Budweiser Black Crown, a stronger version of its flagship brand. CEO Felipe Dutra told investors in February that the company feels "much better about U.S. trends" after three years of soft markets. The company's good fortunes will continue now that the U.S. Department of Justice has agreed to bless its plan buy the 50% percent of Mexico's Grupo Modelo that it doesn't already own for $20.1 billion after originally opposing it.
A-B InBev agreed to sell Modelo's 50% interest in Crown Imports, the distributor of Corona, to Constellation Brands (STZ), which owns the other half of the company.
Although A-B InBev recently gained share in the U.S. for the first time since 2009, it faces two big challenges. First, per-capita beer consumption has been falling in the U.S. for years because of the surging popularity of wine, among other reasons. Also, craft beers have been gaining market share and the expense of more mainstream brands such as Budweiser.
Overall U.S. beer sales were up an estimated 0.9% by volume in 2012, but craft beer sales rose 6.5% on that basis, according to the Brewers Association, a trade group. During the last three months of last year, worldwide beer volumes at A-B InBev fell for the third straight quarter.
The company is fighting back, adding to its lineup of super-premium brands and enhancing its existing products. Wall Street is optimistic that the strategy will work. Analysts have an average 52-week price target on its U.S. shares of $110.42, about 11% above where they currently trade. However, the shares are selling for a frothy price-earnings multiple of 21.93, near a five-year high.
Owning the stock won't go down as easy as a cold Bud, but it should generate decent returns with minimal risk of a financial hangover.
Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.
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