Bank Of America Downgrades Anheuser Busch Due To Sobering Outlook

Anheuser Busch Inbev NV (ADR) BUD was under pressure on Thursday after one Wall Street analyst said that, when it comes to the stock, investors should stay on the wagon.

The Analyst<

Bank of America analyst Fernando Ferreira downgraded Bank of America stock from Neutral to Underperform and cut his price target from EUR96 ($116.30) to EUR71 ($86.01).

The Thesis

According to Ferreira, Anheuser Busch will likely experience a material slowdown in growth following 2019, and the company’s bloated balance sheet could drive financing costs significantly higher. Bank of America sees 5 to 8 percent downside to consensus 2019 and 2020 EPS estimates, and Ferreira said Consumer Staples stocks will continue to be pressured by rising bond yields.

As a result of all these headwinds, Ferreira said Anheuser Busch stock will likely experience earnings multiple contraction in coming years, with the stock’s forward PE ultimately dropping from around 20 today to near the 17 level.

Ferreira said Anheuser Busch and its investors have benefited from a decade in which borrowing costs were low, beer market growth was solid and cost-cutting opportunities were plentiful

“That scenario has now reversed. ABI controls 50% of the profit pool in beer, its high leverage and high dividend pay-out remove the near term M&A optionality, and the end of the cost synergies and challenges in key markets mean that growth rates will halve,” he wrote in the downgrade note.

As a result, Ferreira said management may be forced to make the difficult decision to reduce its investments or cut its 4.2 percent dividend.

Price Action

Anheuser Busch stock traded lower by 1.1 percent to $102.10 on Thursday.

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