Above-Average Growth At Anheuser Busch Is Turning Sour, JPMorgan Says

JPMorgan handed Anheuser Busch Inbev NV (ADR) BUD a downgrade, concluding that the era of above-average growth for AB Inbev is fading. 

The Analyst

JPMorgan analyst Komal Dhillon downgraded her ratings on the shares of AB Inbev from Neutral to Underweight, with the price target for its ADR reduced from $122.66 to $106.69.

The Thesis

Anheuser was a "beacon of high growth" in the European beverage sector for more than a decade with superior pricing power and above-average profit growth, Dhillon said in a Tuesday note. 

But AB Inbev may be transitioning to an era of more muted performance, the analyst said. 

The market is overly optimistic concerning Anheuser's turnaround in Brazil, as well as the ability of its global brands — excluding domestic markets — to offset ongoing challenges in the U.S., according to JPMorgan. Dhillon said she expects underperformance in the U.S. to weigh on group profit until at least fiscal 2020.

Despite AB Inbev's in-line underlying growth and ongoing challenges, Dhillon said the stock trades at a premium to the European beverage sector.

The downgrade, according to the analyst, was prompted by expectations that the recent underperformance is likely to persist. The analyst said better growth opportunities exist with Diageo plc (ADR) DEO

The Price Action

AB Inbev shares are up about 7.5 percent year-to-date.

At the time of writing, the shares were retreating 2.05 percent to $113.07.

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