Tue Oct 01 08:18:05 UTC 2024: ## AB-InBev Stock Upgraded to “Buy” as Citi Forecasts Strong Earnings and Share Buyback
**Brussels, Belgium** – Shares of Anheuser-Busch InBev (AB-InBev) rose by 2.5% on Wednesday after Citigroup upgraded the stock to “buy” from “neutral,” citing a positive outlook for the company’s earnings and the potential for a share buyback announcement.
Citi’s upgrade was driven by a combination of factors, including strong cost control measures, improving margins, and confidence that AB-InBev will exceed its full-year 2024 organic EBITDA growth guidance of 4% to 8%.
While the company is expected to face headwinds in the U.S. and Mexico, driven by weak demand for Bud Light in the wake of the recent controversy, Citi analysts remain confident in AB-InBev’s ability to overcome these challenges.
Despite anticipated volume declines in the U.S., AB-InBev’s rigorous cost-cutting initiatives, particularly in the U.S., are expected to boost margins. This has led to higher confidence in the company’s earnings deliverability for both 2024 and 2025, with margins projected to continue expanding into 2025.
AB-InBev is strategically adjusting its U.S. operations in response to the reduced Bud Light volumes, which has significantly impacted sales. However, the company is benefiting from pricing actions taken earlier this year and a decline in cost of goods sold.
Beyond the U.S., Brazil remains a strong market for AB-InBev, with Citi predicting beer volume growth of 1.5% in the third quarter. This growth is driven by accelerated production in July and continued robust performance. Pricing actions and lower cost of goods sold are also contributing to margin expansion in the region.
While other regions, such as the Middle Americas and China, are facing challenges due to factors like poor weather, economic pressures, and weak consumer confidence, AB-InBev’s pricing strategy and cost controls are mitigating the impact on overall margins.
Citi’s positive outlook for AB-InBev extends beyond the short term. The analysts believe that the company can return to pre-pandemic EBITDA margins of around 40%, compared to 34% in 2023, as commodity prices stabilize and pricing power improves.
By the end of 2024, AB-InBev’s net debt/EBITDA ratio is expected to fall below 3x, creating space for shareholder returns. This includes a potential $1 billion share buyback that could be announced alongside the third quarter results, providing technical support for the stock and boosting investor sentiment.
Citi’s increased target price of €69, up from €61, reflects the improved earnings outlook and a lower weighted average cost of capital. The target is based on a discounted cash flow model, incorporating a risk-free rate of 3.4% and an equity risk premium of 5%.
Despite minor downward revisions to 2024 and 2025 earnings per share, primarily driven by foreign exchange factors, Citi remains optimistic about AB-InBev’s future performance. The analysts believe that the company is well-positioned to navigate current market challenges and deliver strong earnings growth in the coming years.
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