Published on July 1st, 2020 by Bob Ciura
Anheuser-Busch InBev (BUD) is the largest beer company in the world, and this was no accident. The company has grown into the giant it is today, thanks in large part to its industry-leading brand portfolio.
The company has slowly built up its brand portfolio over time, through investment in its own brands, as well as acquisition. Indeed, some of the company’s top brands were obtained through M&A. The end result is that Anheuser-Busch InBev is now the unquestioned industry giant, a large-cap stock with a market cap of nearly $100 billion.
We have compiled a list of over 400 large-cap stocks in the S&P 500 Index, with market caps of $10 billion or more. You can download your free copy of the large-cap stocks list, along with relevant financial metrics like price-to-earnings ratios, dividend yields, and payout ratios, by clicking on the link below:
Anheuser-Busch InBev has a diversified portfolio consisting of over 500 brands, including 8 of the world’s top 10 most valuable beer brands.
Anheuser-Busch InBev now has 17 brands in its portfolio that each generate $1 billion or more in annual sales. The company previously had 18 billion-dollar brands, but lost one after divesting Carlton & United Breweries to Asahi Group Holding, Ltd. for approximately $11 billion late last year.
This article will discuss the company’s 17 billion-dollar brands in greater detail, as well as AB-InBev’s future growth prospects and stock valuation.
Budweiser needs no introduction. It has stood as a core product throughout the company’s history. According to the company, the yeast cells used to brew every bottle of this American-style lager are directly descended from the original culture used by founder Adolphus Busch.
Budweiser has been marketed as the “King of Beers”, and traces its beginnings all the way back to 1876. The history of Anheuser-Busch is extremely impressive, and the company’s growth over the past several decades is due in large part to Budweiser.
Adolphus Busch traveled to America from Germany in 1857. He landed in St. Louis, drawn there due to the large German population, and got a job at a brewing supply company. Among his clients was Eberhard Anheuser, who owned E. Anheuser & Company. Adolphus actually married Eberhard’s daughter in 1861.
After fighting for the Union during the Civil War, Adolphus went to work for his father-in-law, rising up the ranks quickly due to his sharp business sense and innovative new ideas. One example of this leadership is that Adolphus Busch was pasteurizing his beer before America was pasteurizing milk.
By 1875, Adolphus was named secretary-treasurer of the company, and in 1879, the company’s name was officially changed to Anheuser-Busch Brewing Association. After Eberhard’s passing in 1880, Adolphus became president.
When investors think of market disruption, modern-day tech companies typically come to mind. But Adolphus Busch was a disruptor of his own age. In the late nineteenth century, most of the beer produced in America was heavy, dark ales. However, the hot summers meant there was a sizeable market opportunity for crisp, lighter lagers–and the rest is history.
It was more than 100 years after Budweiser’s creation that the company released Bud Light, which was originally known as Budweiser Light. Like most light beers, Bud Light has less carbohydrates, fewer calories, and a lower alcohol content than Budweiser. It was released in response to changing consumer preferences. As consumers became more health-conscious, demand for light beer has only increased, a trend that remains today.
While Budweiser is widely considered to be Anheuser-Busch InBev’s flagship, Bud Light is actually the world’s best-selling American light beer lager. According to market research from Beer Marketer’s Insights, Bud Light is the #1 beer in America, shipping more than 27 million barrels as of 2018. Bud Light held greater than 13% market share all by itself in 2018, an incredible accomplishment given the extremely high number of available beers.
Light beers are often favored by consumers for their simplicity, and Bud Light is no exception. It contains just four ingredients–barley, hops, rice, and water.
Bud Light is available in a number of flavors including lime and apple, and there is an even newer line of beverages called Bud Light Seltzer which is Anheuser-Busch InBev’s foray into the booming category of alcoholic sparkling water.
Corona is a Mexican beer and came to Anheuser-Busch InBev as part of the $20.1 billion acquisition of Grupo Modelo in 2012. Anheuser-Busch InBev does not own the brand in the U.S.; as part of the agreement, Anheuser sold Modelo’s 50% stake in Crown Imports, which distributes Corona and other Modelo brands in the United States, to Constellation Brands (STZ).
Corona has been brewed and bottled in Mexico since 1925. While it is a hit around the world, it is particularly popular in the United States. Since it first hit the United States in 1981, Corona Extra has become the fastest-growing imported beer in the country’s history. Corona Extra is now the #1-selling imported beer and #5-selling beer overall in the U.S.
Brahma is a Brazilian beer, originally made by the Companhia Cervejaria Brahma, which was founded in 1888. In 1914, Brahma produced Malzbier, first produced domestically but was soon expanded to international regions.
Braham may be a relatively unfamiliar beer brand for U.S. consumers, but it is highly popular around the world. In 2019, Brahma had a brand value of 11.41 billion Brazilian reals (approximately $2.1 billion USD today), up from 10.27 billion four years prior. In 2019, Brahma was the fourth-most valuable Brazilian beer brand and #8 most valuable beer brand across the globe.
Skol is a Brazilian beer today, but its history takes place around the world. It was originally created by Ind Coope breweries in Scotland. In 1958, Graham’s Continental was launched and was soon changed to Graham’s Skol, as a reference to Scandinavian culture as the plant was actually imported from Sweden at the time. The name was later revised to just Skol.
In 1964, a consortium of brewers including Allied Breweries of the U.K., Labatt of Canada, Pripps-Bryggerierna of Sweden, and Unibra of Belgium formed the company known as Skol International. The objective was to bring a new global brand to the marketplace–Skol–and ownership of the brand remains split today. Anheuser-Busch InBev’s ownership of Skol pertains to South America. Carlsberg owns the rights to producing Skol around the world, with the exception of South America and Africa.
In 2018 BrandZ ranked Skol the most valuable brand in Brazil for the 6th consecutive year, with a value of USD$8.2 billion.
Michelob Ultra is marketed differently than most of AB-InBev’s other beers, as it caters to a different type of customer. Specifically, Michelob Ultra has fewer calories and lower alcohol content, making it more appealing to an increasingly health-conscious beer drinker.
In this way, it is marketed to those living a more active and social lifestyle. Indeed, Michelob Ultra contains even fewer calories and carbohydrates than Bud Light. Clearly, this has had the desired impact for the company, as Michelob Ultra is now on the list of AB-InBev’s billion-dollar brands.
Stella Artois is a unique beer in many ways. It has quite an interesting history, going back over 600 years to the Den Hoorn brewery in Leuven, Belgium that was founded in 1366.
It was originally brewed as a Christmas gift to the people of Leuven, Belgium from the brewery. The word Stella means star in Latin, while the name Artois is a tribute to De Hoorn Brew Master Sebastian Artois.
Another unique aspect of Stella Artois is that it is to be served in a chalice following an exacting 9-step “Pouring Ritual”. Regardless of how it’s poured, Stella Artois is highly popular–it is the world’s #1 Belgian beer. Stella Artois shipped 2.7 million barrels in the U.S. in 2019.
Busch in its current from was created in 1955. The brand started out as Busch Bavarian Beer, but was rebranded as Busch in 1979. Busch is the #10 top-selling beer in the U.S., shipping 3.9 million barrels in 2019.
Harbin beer was created in 1900. According to Anheuser-Busch, Harbin is China’s earliest beer. Today, it is China’s fourth-largest brewery. Anheuser-Busch acquired Harbin in 2004, which gave it valuable access to China, one of the world’s premier emerging markets.
The company also prides itself on the complex process that goes into making Harbin beer, which includes more than 1,400 standard procedures and 240 quality assurance processes. Taking advantage of AB-InBev’s unparalleled global distribution capabilities, the brand has been expanded to Europe, although its market share there remains fairly low.
Victoria was first produced in 1865, making it Mexico’s oldest beer brand. It is one of the beer brands that was purchased as part of the Grupo Modelo acquisition.
Aguila is the #1 beer in Colombia. It is a lager that has been brewed since 1913. Not only is Aguila one of AB-InBev’s billion-dollar brands, it is also one of its fastest-growing, particularly in the Middle Americas region.
In 2019, Aguila generated double-digit volume growth. AB-InBev is also marketing a different drinking image of Aguila.
Last year, the brand launched the “Live Responsibly” campaign to motivate consumers to use moderation in their drinking so they can live their fullest lives.
Antarctica emerged as an ice factory in 1888 and one year later started producing beer. Today, it is a leading brand in South America.
Poker is a beer manufactured by Bavaria Brewery, which is based in Columbia. Bavaria Brewery was founded all the way back in 1889 by Leo S. Kopp, a German immigrant. Anheuser-Busch InBev acquired Bavaria in 2016 as a result of its takeover of SABMiller. Aquila is another popular brand under the Bavaria Brewery umbrella.
Natural Light was introduced in 1977 as Anheuser-Busch’s first reduced-calorie beer. In 1995, the company introduced Natural Ice, which soon became the top-selling ice beer. Natural is marketed as an economy brand, selling for a lower price point than many other company brands.
Natural Ice has seen its market share decline in recent years, and now stands as the #2 ice beer in the United States. Still, Natural Light continues its dominance. The company shipped 6.9 million barrels of Natural Light in 2019, good for the #8 spot among the top-selling U.S. beers.
Carling Black Label
Carling Black Label is a part of AB-InBev’s ownership of South African Breweries, or SAB, which was founded in 1895. Today, SAB is South Africa’s top brewer. It has a massive presence across South Africa, with 7 breweries and 40 depots that collectively hold an annual brewing capacity of 3.1 billion liters.
It has a large and diversified portfolio of beer brands including Carling Black Label, as well as Hansa Pilsener, Castle Lager, Castle Lite, and Castle Milk Stout. Carling Black Label has been brewed for over 40 years.
Castle Lite is the flagship beer of Castle Breweries. Like Carling Black Label, Castle Breweries is under the umbrella of South African Breweries. Castle Breweries was founded in 1894, making it one of the oldest commercial breweries in South Africa.
As legend has it, Castle Breweries was founded by Charles Glass in Johannesburg. Today, Castle Lite is South Africa’s #1 premium beer brand.
Anheuser-Busch InBev Growth Potential
AB-InBev has had a difficult start to 2020. This is understandable, due to the coronavirus crisis that caught the world by surprise and has had a devastating impact on the global economy.
Investors may have hoped that stockpiling by consumers, in anticipation of nationwide stay-at-home orders, might have helped AB-InBev’s sales stay afloat. But widespread closures of bars, restaurants, sports stadiums, and other large events has more than offset any benefit from increased pantry-loading.
AB InBev reported its first-quarter financial results on May 7th. For the quarter, company-wide revenue declined 5.8% year-over-year to $11 billion, down from $12.2 billion in the same quarter last year. The decline was due to a 10.5% decline in beer volume, a 0.2% decline in non-beer volumes, and a 9.2% decline in third-party products.
All geographic regions saw lower volumes, but the decline was particularly severe in the Asia-Pacific region (down 42%) not surprisingly due to the coronavirus outbreak. Even AB-InBev’s powerhouse three brands–Budweiser, Stella Artois, and Corona–posted an 11% global decline.
Earnings per share swung to a loss of $1.13, compared with a profit of $1.80 in the year-ago period. Underlying earnings-per-share declined to ($1.13)from $1.80in comparable periods. Underlying earnings declined 30% to $0.51.
The weak results have had a negative impact on the company’s dividend as well. AB-InBev cut its dividend to preserve cash, both because of the company’s declining sales and earnings, but also due to an excessive level of debt. The acquisitions of Grupo Modelo and SABMiller in recent years caused AB-InBev’s debt load to soar, and the company has had to embark on a painful process of deleveraging.
Still, in a normalized economic climate, we expect AB-InBev to return to growth. The company maintains a large and diverse portfolio of leading brands, which provides it with unparalleled global scale. We expect a 25% reduction in earnings per share for 2020, followed by 3% annual EPS growth through 2025.
Although we do not expect high growth from AB-InBev, the main appeal of the stock is for value investors. The difficulties of the past few years have led to a sharply lower share price, but on the other hand, this has made the stock highly appealing from a valuation perspective.
Based on expected earnings-per-share of US$3.47 for 2020, AB-InBev stock trades for a price-to-earnings ratio of 14.2. We believe the current valuation is too low for an industry-leading company with durable competitive advantages. Our fair value estimate is a P/E ratio of 18. An expanding P/E multiple to the fair value estimate would boost annual returns by 4.9% per year over the next five years.
Due to the company’s future growth potential and low stock valuation, we find Anheuser-Busch InBev to be the top beer stock today.
Anheuser-Busch InBev has gone on many twists and turns in the course of its many decades of existence. The company has experienced difficulties as of late, due to an elevated level of debt, and the global economic downturn due to the coronavirus pandemic. Shares have performed poorly in the past several years as a result.
While the stock has not rewarded shareholders recently, the future looks bright for AB-InBev. The company retains a world-class beer portfolio, with several top-selling brands and 17 billion-dollar brands. A return to growth is likely over the long-term. In the meantime, the valuation of AB-InBev stock is highly attractive, and the stock continues to pay a dividend to shareholders.