Wall Street Loves Budweiser. Should You?

Despite all of Wall Street's conflict and contention, a fortunate few companies enjoy unanimous support among professional analysts. If the market's movers and shakers all believe these companies will beat the long-term averages, well, surely they will -- right?

Not so fast! With help from Motley Fool CAPS, the 180,000-member-driven investor community that translates informed opinion into stock ratings of one to five stars, we'll see whether these high-flying favorites deserve analysts' unwavering support.

Today we'll take a look at Anheuser-Busch InBev (NYSE: BUD  ) , the largest U.S. brewer, which is most famous for its Budweiser beer but has a portfolio of well-known brands including Michelob, Rolling Rock, Land Shark, Stella Artois, Becks, and more.

Among the analysts that CAPS tracks, eight have weighed in on the brewer, and despite the lackluster performance of the beer industry, they believe it will outperform the indexes. Yet the investor community isn't nearly as supportive: While 91% rate it to outperform the broad market averages, its middling three-star CAPS rating (out of five) suggests they think there are still better places for your money.

Of course, just because Wall Street loves 'em doesn't mean you have to. Analyst sentiment is only just the jumping-off place for your own research.

I'll drink to that
According to the Beer Institute, the overall beer market grew less than 2% over the first three quarters of 2012, and then again only because the craft beer market has seen such heady results: Its volumes have been surging, up 12% over the first six months while dollar sales are 14% higher.

Yet even the craft brewers have seen consumer tastes change, with sales of hard ciders and teas like those sold by Boston Beer (NYSE: SAM  ) outpacing even its original Samuel Adams brand. Then there's the rise of spirits, which have witnessed a resurgence. Beam (NYSE: BEAM  ) says sales were up 3% to 4% last year, and Brown-Forman (NYSE: BF-B  ) points to its Jack Daniel's whiskey and Finlandia vodka for its outperformance. Diageo (NYSE: DEO  ) also pointed to the strength of the U.S. spirits market for the 5% organic sales growth it enjoyed in the third quarter.

I'll have what he's having
Although Budweiser can't do much about drinkers slamming back a shot of Jack, they can make sure the craft brewers don't steal too much more of their market share by brewing their own craft beers. Bud's Shock Top Belgian White has the Brewers Association apoplectic over the audacity of calling it a craft beer since it's brewed by one of the two brewers that control three-quarters of the beer market (SABMiller is the other one). The craft beer trade group also takes umbrage with Molson Coors (NYSE: TAP  ) for offending a beer snob's sensibilities.

Yet a number of industries have such cross-pollination. For example, power-tools maker Stanley Black & Decker owns National Hand Tools, which makes Husky, MAC, and Proto but also owns Delta, Porter-Cable, Oldham, and DeVilbiss. You'll hear a lot of argument about which tool is best without the debaters knowing they're all owned and made by the same company.

Organic-food lovers suffer the same identity crisis: Megabrand Kellogg owns Kashi and Gardenburger, Kraft Foods owns Boca Foods and Back to Nature, and Dean Foods  -- until it spun out its WhiteWave Foods division -- owned Horizon and The Organic Cow of Vermont.

So too with many of today's craft beers, where the megabrewers have set down roots in the folksy woods of craft brewing. So we find Blue Moon and Batch 19 brewed by Coors (through Tenth and Blake), and Goose Island by A-B brewing up Honker's Pale Ale.

Yet it's going in the other direction, too. Boston Beer is almost too big to be a true craft brewer anymore (regardless of the definition these days), but it bought Alchemy & Science to serve as "craft beer incubator," where it will foster the next generation of craft brewers.

Have another round
Because of the size of its distribution, the brands in its portfolio, and the sheer power of will when it focuses its attention on an area it wants to address, Anheuser-Busch is more than just the 800-pound gorilla in the room. It sucks all the oxygen from the room, and that's why craft brewers are concerned that the beast has turned its attention more narrowly to their niche. It can command the shelf space and get the pricing that it wants to the detriment of its rivals.

Not that its size has always worked in its favor. It wasn't able to move the sales needle very much simply because it was big and had substantial distribution muscle. Bud still had to go out and start a craft brew company, and both it and Miller have purchased hard cider and tea makers of their own because it's the current rage. 

Yet even at its elevated share price, Bud's enterprise value trades at just 15 times its free cash flow, similar to Molson Coors' 14 EV-FCF ratio. That might not make them bargain-basement stocks, but for a company of its size, it is a reasonable value. Boston Beer goes off at 75 times its FCF and the Craft Brewers Alliance (NASDAQ: BREW  ) is only slightly better, at 60 times its free cash flow. I have to agree with the analysts that Anheuser-Busch InBev is a stock worth taking a sip of.

Boston Beer's Samuel Adams brand helped to redefine beer and kick off the craft beer revolution in the United States. Success breeds competition, though, and while just a few years ago Boston Beer had claim over most of the craft beer shelf, today the field is crowded. Can Boston Beer rise above the rest, or will it be squeezed between small local breweries on one side and global beer giants on the other? To help you decide, we've compiled a premium research report filled with everything you need to know about Boston Beer's risks and opportunities. Just click here now to find out whether Boston Beer is a buy today.

 


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