(excerpt)
What’s more American than enjoying a hot summer day with hamburgers on the grill and a cold Budweiser chilling in the cooler? Except, you may not realize that the Budweiser you are enjoying is actually not American at this point. Rather, it is owned by an international brewing conglomerate with its headquarters in Belgium. The stock has had a good run in 2014, but can it continue? ...
The financials
…AB InBev has relied on a strategy of aggressive acquisition to grow revenue and margins. One look at their financials and you can see how successful the company has been in implementing their strategy. They have rapidly grown revenue and earnings per share (EPS) over the past five years and have an extremely high profit margin given the company is considered a consumer staple. …
Dividend growth
…Currently, the dividend yield is at 1.75%, but AB InBev has been aggressively increasing their dividend over the past five years as the five-year dividend growth rate is over 50%. In 2010, AB InBev paid a yearly dividend of $0.49/share and in 2013 they paid out $3.03/share. We expect dividend growth to continue as the company has a very low payout ratio.
Valuation
It would be hard to consider AB InBev cheap, as it has returned nearly 30% annually over the past three years, but the P/E ratio tells a different story. The trailing 12-Month (TTM) P/E Ratio is 13.6, which is significantly cheaper than its peers Molson and Heineken (19.8 and 22.0, respectively) and less than the overall S&P 500 company average, as of June 26, 2014. …
Competition and concerns
…As previously mentioned, AB InBev is an international company that has relied on acquisitions to grow the brand. If we see these acquisitions slow down, we could also see the growth rate slow as well. In the U.S., a Budweiser may be considered more of a staple than a cyclical product, but in many emerging markets, the sale of beer is very much related to GDP. AB InBev is highly reliant on the Latin American market, and their success is dependent on the future growth of these countries.
Recommendation
With the combination of very strong financials, a fairly low valuation, and a high dividend growth rate, AB InBev looks poised to continue their strong growth. …
…Now back to that barbeque.
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