Bud Light sales will be 'permanently' lower. Citi says buy Anheuser-Busch InBev anyway

By Steve Goldstein

Analysts say cost cutting will boost profits and allow for more stock buybacks at Budweiser maker

Bud Light sales are never going to recover. And yet now is the time to buy shares of its brewer, Anheuser-Busch InBev, say analysts at Citi.

Analysts led by Simon Hales argue that the weakness in U.S. volumes - where Bud Light sales are deteriorating even after more than a year of a consumer boycott - are being offset by lower costs and ongoing strong margin expansion.

Bud Light sales first started to fall following a backlash to a social-media campaign with transgender influencer Dylan Mulvaney. Even more than a year removed from the eruption of the controversy, Bud Light sales are still deteriorating - down 8.1% year-over-year in the week ending Sept. 7, according to data from Nielsen.

But the Citi analysts said even as it expects U.S. sales to retailers to fall by 3% in the third quarter, it expects U.S. profit margins to improve by 250 basis points. The analysts say cost cutting will allow the company to recover $500 million of the lost $1.5 billion of Bud Light related profits.

The analysts aren't all that bullish on earnings relative to consensus, forecasting 89 cents a share, vs. 91 cents on Wall Street. But they say that tight cost control will allow the group to deliver on its 48% to 8% organic growth target for earnings before interest, tax, depreciation and amortization.

They also say that the company may announce a $1 billion buyback when it announces third-quarter results on Oct. 31. And finally, they say the margin expansion is set to continue into next year, giving it more confidence in its ability to deliver on earnings in 2025 relative to peers.

The analysts opened what they called a "positive catalyst watch" ahead of the third-quarter results, upgraded the company to buy from neutral, and lifted its price target to EUR69 ($76.53) from EUR61.

Brussels-listed shares (BE:ABI) (BUD) rose 2% to EUR60.66 and have gained 4% this year.

-Steve Goldstein

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10-01-24 0720ET

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