Anheuser-Busch InBev May Need One More Quarter to Confirm a Buy Signal

If the company continues to maintain its pricing power, BUD stock may be a shrewd buy 

Equities continue to whipsaw back and forth which makes the near-term outlook for buying stocks a little dicey. And calling a bottom or top is always a fool’s errand. In fact, many investors can use a drink or two. Nonetheless, this is the time for investors to start putting together their watchlists. And when they do, Anheuser-Busch InBev (NYSE:BUD) has qualities that investors will be looking for when buyers return to the market.  

First the bad news. In what’s becoming a pattern, BUD stock fell nearly 10% despite the company beating on both the top and bottom lines. The reason seems to be that the company’s guidance was as expected. And to many analysts, expected is not good enough. Particularly when there’s enough uncertainty about the broader economy to make investors question how much value to put on “expected.”  

However, reading the remarks of management on the company’s earnings call gives a hint that BUD stock may reward patient, opportunistic investors.  

Consumers Are Willing to Pay More 

Anheuser-Busch InBev is classified as a “sin stock” because of its focus on alcoholic beverages. These stocks end to perform well in any economic condition. The basic idea is that while consumers will cut back on certain items during periods of economic hardship, they’ll usually still buy alcohol.  

But quality still matters. After all there is a lot of competition in this space. And the prevalence of local, craft beverages is only increasing. However, this is a time when size matters. Not only is Anheuser-Busch better able to manage its own internal costs, it’s also able to pass those costs along to its consumers.  

And that certainly appears to be the case. The company reported a slight drop in beer volumes for the quarter (3% as opposed to 4%). However, citing “relentless execution” the company was successful at keeping its margins high in the face of rising costs for wages, transportation and aluminum.  

Expanding Its Premium Product Base 

I’ll always believe that Anheuser-Busch has a tremendous catalyst in being the official beer sponsor of the National Football League (NFL). The league continues to grow in popularity and Bud Light has become a ubiquitous logo at any NFL event.  

But the company is expanding into other areas. Many millennial and Gen-Z consumers are saying no to beer and yes to seltzers, hard ciders, teas, or juices. Anheuser-Busch continues to expand into these areas. And one reason why they can do this is because of the strength of its legacy brands. Plus, the company continues to build out its digital platform which is helping to boost sales and margins.  

Analysts Remain Bullish On BUD Stock 

Despite the recent downturn in the company’s stock, analysts still give BUD stock a $71.17 12-month price target. That’s an attractive 28% upside from its current level. However, analysts currently rate the stock as a Hold. And that’s likely because they want to see another quarter or two of earnings reports to confirm that sales are still strong.  

The April CPI report gives some indication that sales may at least stay constant. Consumers are not giving up on spending yet. And when they do, it’s likely that other sectors (I’m thinking airlines and hotels) are going to feel it first. But even with that said, it means that investors may not see stock price growth for a couple of quarters. 

And with that in mind, there’s no reason for you to buy BUD stock yet. There are other dividend stocks that are better. However, it’s one to watch over the next