Anheuser-Busch InBev (NYSE: BUD) stock rose 2.8% through 12:05 p.m. ET on Monday after UBS analyst Sanjeet Aujla upgraded shares of the beer giant to buy, and raised its price target to 72 euros (about $77.30).
Previously, Aujla had a neutral rating on the stock, and a price target of 62.5 euros (about $67.10).
What UBS says about Anheuser-Busch
The analyst likes three things about Anheuser-Busch stock: growth, profit margins, and cash returns, as described today in a note on Street Insider.
Looking out 12 months, Aujla forecasts that the company will grow its product volume 1.5% to 2% and it will raise prices no more than the rate of inflation so as to not upset consumers. Despite the pricing restraint, Aujla says Anheuser-Busch should be able to expand its profit margins and generate free-cash-flow (FCF) growth of as much as 7%.
The analyst calls the above scenario "the ideal consumer staples growth profile," and believes it makes Anheuser-Busch InBev stock a buy, and at a discounted valuation compared to other European consumer goods stocks.
Is Anheuser-Busch stock a buy?
Valued at 25.4 times earnings today, Anheuser-Busch stock doesn't look particularly cheap. Relative to the consensus long-term earnings growth rate of 12.5%, the stock actually costs a bit more than a 2 PEG ratio. (Value investors tend to prefer stocks trading for less than 1.)
Is the free-cash-flow picture any better? Last year Anheuser-Busch generated FCF of $8.6 billion -- significantly more than its $5.3 billion in reported net income. However, the company carries significant debt -- $68 billion more than its cash on hand -- resulting in an enterprise value of $188 billion, and an enterprise value-to-free-cash-flow ratio of 21.9, which is even more expensive than its P/E ratio, not less.
All things considered, even if Aujla is right in all other respects -- volumes will grow, prices will be stable, and free cash flow will expand modestly -- I still think Anheuser-Busch stock costs too much. To me, it's not yet a buy.
Should you invest $1,000 in Anheuser-Busch InBev/NV right now?
Before you buy stock in Anheuser-Busch InBev/NV, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Anheuser-Busch InBev/NV wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $775,568!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of June 24, 2024
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
