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Can AB InBev's (BUD) Efforts Help the Stock to Rebound?

Anheuser-Busch InBev SA/NV BUD, alias AB InBev’s stock has been moving downhill owing to its dismal earnings surprise history, which largely bears the impact of currency challenges and a tough Brazilian market. While these factors have kept investors on their toes, we laud AB InBev’s robust growth endeavors that have enabled it to maintain its world’s largest brewer status.

So, let’s weigh both sides of the coin and see if these solid strategies can save this Zacks Rank #3 (Hold) stock from declining further.

Splendid Portfolio – A Driving Factor

AB InBev’s combined brand portfolio with SABMiller includes more than 500 beer brands, including some of the most renowned beer brands worldwide, like Budweiser (the King of Beers), Corona and Stella Artois. Talking of Budweiser, this over a century old brand has emerged as one of the most valuable beer worldwide. It is sold in over 85 countries. Well, AB InBev’s robust kitty includes seven of the top 10 global beer brands. The company remains focused on further solidifying the strong image and market position of these brands.

Focus on Exploring other Avenues for Growth

AB InBev keeps introducing with near beer alternatives, along with no- and low-alcohol beers to provide greater choices to consumers. In fact, management expects the low and no-alcohol beer category to account for about 20% of its global beer volumes by 2025. AB InBev’s foray into the craft beer industry is another factor that highlights its practice of exploiting all possible growth opportunities. In order to make the most of this lucrative market, AB InBev has made numerous acquisitions to strengthen its position in the competitive craft beer space.

SABMiller Integration on Track

AB InBev’s buyout of SABMiller has augmented its presence in the brewing space, thus creating the ‘first truly global beer company’. Notably, the combined entity has a significant share in the global beer market. Also, their robust geographical reach enables the combined giant to serve all major beer markets that have sturdy growth potential. Well, the company is well on track with SABMiller’s integration, and realized synergies worth $252 million in this regard, in first-quarter 2017.

All these factors have helped this Belgium-based retailer to carve an impressive niche, thus emerging as the strongest player in the beer space. However, the company has seen its shares tumble 13.3% in the last one year, compared with the Zacks categorized Beverages – Alcohol industry’s drop of 4.1%.

What Went Wrong?

AB InBev’s bearish run is largely accountable to its dismal earnings surprise history. Incidentally, the company has lagged earnings estimate in each of the trailing five quarters, at an average of 31.7%. In first-quarter 2017, results were majorly hurt by a disappointing Brazilian performance, which in turn was marred by difficult consumer trends and unfavorable currency movements.

As evidence, negative foreign currency translations were largely responsible for the increase in AB InBev’s cost of sales in the quarter. Also, management anticipates cost of sales to escalate in 2017 due to lingering currency woes, along with growth of premium brands. This remains a threat for the company’s bottom line. Additionally, a tough macroeconomic environment and volatility in some of the core regions remain concerns for the company, given its consumer-driven business.

While management expects great volatility in some of its core regions, it still projects revenues growth in 2017 to be backed by robust growth of global brands and its commercial plans.

That said, let’s wait and see if AB InBev’s steady growth efforts can do some good to its stock. Until then, investors can place safe bets on other stocks in the same space.

3 Hot Picks in the Beverage – Alcohol Space

Craft Brew Alliance, Inc.’s BREW shares have surged about 35.1% in the last one year and it sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Constellation Brands Inc. STZ, with long-term earnings per share growth rate of 18.2%, flaunts a superb earnings surprise history. The stock carries a Zacks Rank #2 (Buy).

Heineken NV HEINY, also with a Zacks Rank #2, has long-term earnings per share growth rate of 7.5%.

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