Is Ambev Stock A Buy?

Ambev ADR (NYSE:ABEV) is a Brazilian brewing company that actually operates as a subsidiary of Anheuser-Busch. Headquartered in Sao Paulo, Brazil, it operates in 14 countries in North and South America.

It is also the largest PepsiCo bottler outside of the United States, meaning there are a lot of people buying its soft drinks and other beverages.

With the company collecting a “toll” on every bottle, is AmBev stock a Buy?

When the pandemic shut down bars and restaurants around the globe, Ambev was on the receiving end of a huge haymaker punch that it still hasn’t recovered from. However, the prospect of a more open economy is causing investors to buzz again about this alcoholic and non-alcoholic drink company.

ABEV share price is still nowhere near its old price levels so let’s see what tools this scrappy company has up its sleeves to rebound.

AmBev Do?

Ambev is involved in the production, distribution, and sale of both alcoholic and non-alcoholic beverages.

It’s one of the major branches of AB InBev, the result of a merger between beverage giants Anheuser-Busch and InBev, which is comprised of four major subsidiaries:

1.     Anheuser-Busch

2.     InBev

3.     AmBev

4.     Grupo Modelo

AmBev itself was formed in 1999 through a merger of Brahma and Antarctica breweries in Brazil. It’s the biggest player in the South American and Caribbean markets and is dual listed on both Sao Paulo’s B3 stock exchange and the New York Stock Exchange.

The brutally competitive beverages market got even more deadly as the world of business came to a halt. This is because much of the sales are done B2B to businesses, like bars and restaurants, that were shut down during widespread city lockdowns around the globe.

Its beer brands include the two above breweries’ namesakes, Skol, Bohemia, and Guarana. It also acts as a regional distributor for Pepsi, H2OH!, Lipton Ice Tea, and Gatorade. So how much revenue does this impressive portfolio draw?

Is Ambev Stock a Buy?

AmBev stock dropped to a 52-week low of $1.90 per share amid the coronavirus pandemic. It has since recovered about a third of its market cap, but remains over 40% lower than where it traded prior to the crisis.

In fact, ABEV share price reached over $7.00 in early 2018, so it can theoretically support about a 3x higher price in a better economic climate.

Of course, when and how the economic recovery will reach the beer and soda industries remains to be seen. 

Still, the company managed not to lose money during any quarter in 2020, even if it missed analysts’ forecasts for the first half of the year.

By the third quarter, its $0.03 earnings per share (EPS) far exceeded expectations, despite falling short of the same quarter in 2019.

The consensus is that the company will end the fiscal year at $0.10 earnings per share, and outpacing this by beating fourth quarter estimates would send the company on an upward trend through the next quarter.

If the world cracks open bottles and pours glasses to celebrate the end of the pandemic, it’s not an unlikely hypothesis.

Ambev Share Price Faces A Big Unknown Risk

The biggest problem AmBev faces is a slow crawl to normalcy in the bar and restaurant industries. In fact, it doesn’t stop there – drinks are also served at large gatherings, like festivals, conferences, reunions and universities to name but a few occasions and venues negatively impacted.

All of this was shutdown by the pandemic, and there’s no telling how long it will take for life to return to some degree of normalcy.

Because of this, the company faces an uncertain near-term future that could cause it to eat some losses. Restructuring can only go so far, and if there are no orders to fill, the company will inevitably suffer from margin contraction. It’s not going to face these obstacles unarmed though.

AmBev started the year with $15.0 billion cash and cash equivalents on hand and “just” $2.20 billion in debt. Such comparably low debt keeps Ambev’s balance sheet strong. This means it has plenty of reserves to make whatever pivots it needs to remain profitable, or at least tread water, through the economic crisis.

It’s most likely going to grow, but what’s less certain is how it’ll perform compared to the overall market, much less its competition.

Can Ambev Competitors Win?

Although it’s a big player in its region, AmBev still has strong competition. Companies like Bacardi, Diageo (DEO), Molson Coors, Pernod Ricard, Altria (MO), and Coca-Cola (KO) have a strong presence in its core geogrphay. And the beverage industry is a lot more technical than you think.

Coca-Cola (KO), for example, has a highly sophisticated supply chain monitoring solution. Its AI-driven platform can optimize restocking rates using its own distribution network to ensure shelves are never empty. This is why you saw all the soda and alcohol shelves fully stocked everywhere you went during the panic shopping sprees.

If it can’t keep up with the research and development, along with expensive targeted marketing, Ambev risks losing market share to its thirsty competition.

Is Ambev Stock A Buy? The Bottom Line

AmBev is a regional beverage company that largely serves the Americas and includes a wide variety of beers, sodas, and other beverages. It’s a vertically integrated operation that can produce, distribute, and sell the products. As a subsidiary of AB InBev, it’s also able to benefit from the collective wisdom of a global network.

All the help in the world couldn’t keep it from dipping when market plummeted around the world. Major buyers like bars and restaurants were shut down. Major events went virtual. The world changed, and it’s unclear how long it will take to return to normal.

In the short term though, people are likely to be celebrating the last month of the year, and that makes this an enticing buy for bulls who believe in it.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.