UPDATE: Morgan Stanley Upgrades AmBev

In a report published Tuesday, Morgan Stanley analyst Lore Serra upgraded AmBev SA ABEV from Equal-weight to Overweight, moving its price target from NA to $8.00. According to the report, it is expected that cash flow growth will accelerate more, setting the stage for further dividends/buybacks for ABEV. “We calculate that AmBev's free cash flow fell to R$7.6 billion last year, but that it will increase to R$13 billion in 2014 and R$15 billion in 2015 – or a free cash flow yield of 5-6% – thanks to stable capex and lower working capital. At 9% of sales, AmBev's capital spending is the highest of global brewers and is likely at a peak level.” Some highlights from the report included: -”We see an improved outlook for ABEV into 2014, as beer volumes resume growth and as cost pressures abate.” -”We forecast that ABEV's earnings/EBITDA will grow 16%/11% over 2013-16 in local currency terms (10%/5% in US$ terms), with above-trend growth in 2014.” Some risks to ABEV include continued FX depreciation and/or adverse (excise) tax developments. ABEV closed Monday at $6.98 with shares trading down at 2.24 percent.