Anheuser-Busch Companies (BUD) is benefiting from industry consolidation of production and a growing international beer presence from management's astute acquisition strategy. Though there are concerns about higher commodity costs, especially energy, agricultural, and packaging costs, the results year-to-date demonstrate management's ability to implement productivity programs to offset the negative inflationary effects.
Valuation, demographic trends, and the significant multi-year $100 million share repurchase program make the stock an attractive investment at current levels. The Buy recommendation is maintained.
The outlook for the beer industry is positive. The beer segment was hurt by a shift in consumer preferences toward healthier, non-alcoholic beverages in the 1990s, but now with the key 21- to 28-year-old age group growing again, U.S. beer consumption is expected to rise. A majority of domestic brewers have experienced a decline in shipments due to high wholesaler inventories; however, sustainable price increases have led to growing revenue per barrel.
Anheuser-Busch stock has traded in a P/E range of 16 to 27 over the last five years. At the current P/E of 17.3, we find the stock attractive and expect the stock to outperform. Our target of $61.25 is based on a 22 P/E on trailing 12-month earnings.
Read the full analyst report on BUD.
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