On Tuesday, Citi updated its stance on Anheuser-Busch InBev (ABI:BB) (NYSE: BUD) stock, adjusting the price target to EUR61.00 from the previous EUR65.00. The firm retained a Neutral rating on the brewer's shares. The revision reflects a cautious outlook due to persistent challenges in the Chinese market, which have impacted the company's volume sales.
The report acknowledged that despite the difficulties in China, Anheuser-Busch InBev is likely to see improved momentum in the second quarter of 2024, driven by stronger consumer demand in other markets. This is expected to be further bolstered by moderating headwinds from the Bud Light brand.
Citi anticipates that the second quarter will benefit from strategic pricing, reduced cost of goods sold (COGS), and the diminishing need for wholesaler support in the U.S., which together should lead to a 7.9% increase in organic EBITDA growth.
Citi's analysis suggests that the company's performance in the first half of the year will likely align with the upper end of Anheuser-Busch InBev's own guidance, which forecasts EBITDA growth of 4-8%. The expectation is that management will subsequently refine this forecast to a narrower range of 6-8% in light of the anticipated results.
The report also expresses confidence in Anheuser-Busch InBev's execution and notes that the risk to the full-year 2024 estimates appears to be tilted towards the positive. Nevertheless, the firm cites ongoing stock overhang issues and a comparative disadvantage to Heineken (AS:HEIN) due to less benefit from favorable weather conditions and sports events in the third quarter in Europe as reasons for maintaining its Neutral rating. Citi concludes that while it is difficult to argue against the stock, their preference leans towards Heineken as the earnings season approaches.
In other recent news, Anheuser-Busch InBev (AB InBev) has been upgraded to Buy from Neutral by UBS, raising the beer giant's stock target to EUR72.00. This change reflects UBS's anticipation of a positive shift in Anheuser-Busch's performance across several key metrics in the coming months.
UBS's upgrade is based on the expectation that Anheuser-Busch will achieve consistent volume growth between 1.5% and 2%, align pricing with inflation, and see an expansion in margins and robust cash conversion.
In recent developments, AB InBev reported a promising start to 2024, with a 6.7% increase in net revenue and a 5.4% growth in EBITDA. The company's digital initiatives have generated $465 million in gross merchandising value of non-API products in the first quarter. Despite challenges in the Chinese market due to weather and macroeconomic conditions, the company remains confident in its long-term market potential.
In addition, AB InBev has completed a $1 billion share buyback program, with an additional $200 million executed in direct share buybacks. UBS also anticipates upside risks to Anheuser-Busch's margins and free cash flow for the fiscal years 2024 and 2025, predicting more than a 7% increase in margins and a 16% rise in free cash flow. These recent developments and projections indicate a strong confidence in the inherent value and financial health of Anheuser-Busch moving forward.
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