Bank of America upgrades AB InBev, sees margins expanding as brewer leaves Bud Light backlash behind

Published Fri, Sep 29 20236:19 AM EDTUpdated Fri, Sep 29 202310:49 AM EDT

Anheuser-Busch InBev is approaching a margins inflection point, supporting a stock re-rating for the world's largest beer maker, according to Bank of America. Analyst Andrea Pistacchi upgraded shares to buy from neutral. She also issued a price target of $68 for the company's U.S.-listed shares. The new price target on shares implies 27% upside from Thursday's close. "Over the last few years, ABI has transformed its business in many of its key markets (particularly in LatAm), with a more effective portfolio strategy, stepped-up innovation and digitization of its route-to-market with BEES (B2B), a clear competitive advantage," Pistacchi wrote in a Friday note. "The commercial transformation (and facing increased competition in some markets) has led to better volume and top-line performance; however, until now, this has not been converted into better profit growth. … That said, we believe that margins are at an inflection point," the analyst continued. Pistacchi cited easing input costs and more stability in Latin American currencies — with the exception of the Argentine peso — that she thinks will reduce the cost of goods sold in 2024. She added that a higher cost of doing business as a result of the company's commercial transformation is largely baked into the stock. "With the portfolio transformation well advanced in many markets and BEES rolled out at scale (and starting to attract third-party margin- accretive 3P partnerships), we believe that ABI is in a good position to leverage its strong market positions, particularly in LatAm, into better profit growth going forward," Pistacchi said. The analyst added that the permanent profit hit, estimated to exceed $1 billion, from the Bud Light backlash in the U.S. this year, is now part of the base case. Without the Bud Light issue, Pistacchi estimates Anheuser-Busch could have expanded its margins more than 30 basis points above its current forecasts. Pistacchi added that the company is "a relatively defensive stock for the current environment." "Against an uncertain global economic and consumer backdrop, we like ABI's exposure to LatAm (almost 60% of group EBTDA), where economists are expecting only a slight slowdown in private consumption," said Pistacchi. U.S.-listed shares of AB InBev are down more than 10% this year as Bud Light sales took a hit. Over the past 12 months, however, they remain higher by 17%. BUD YTD mountain BUD in 2023 — CNBC's Michael Bloom contributed to this report.