Foolish Forecast: Will Anheuser-Busch Suds the Analysts?

"King of Beers." It's an odd title for a company that hasn't managed to beat a Wall Street earnings estimate for a year. When Anheuser-Busch (NYSE: BUD  ) reports third-quarter 2007 earnings on Thursday, will it prove itself once again worthy of its title?

What analysts say:

• Buy, sell, or waffle? Fourteen analysts enjoy Budweiser. Four want to buy it, nine more are content to hold, and one would sell the shares.
• Revenues. On average, they expect sales to increase 5% to $4.51 billion.
• Earnings. Profits are predicted to rise 12% to $0.92 per share.

What management says:
New CEO August Busch called A-B's second quarter "solid" back in July ... before twice qualifying that adjective with "in many aspects" and "of our core operations." Which suggests that at least some aspects within core operations, and perhaps more outside of them, were a bit shaky. Incidentally, that's about the same conclusion that fellow Fool Ryan Fuhrmann came to. The title of Ryan's column, "King of Mediocrity?," will give you a clue to his opinion of the stock, which he compared unfavorably to liquor-purveyors Diageo (NYSE: DEO  ) , Brown-Forman (NYSE: BF-B  ) , and Fortune Brands (NYSE: FO  ) .

What management does:
Sales were up 6% last quarter, and profits rose 7.4%. Although it's true that gross and operating margins have slipped over the last few quarters, A-B has managed to keep its bottom-line net margin more or less intact, permitting profits to track sales growth. Ryan credits the firm's industry-leading market share in the U.S. for giving it the pricing power to maintain these margins. The flip side of that argument, as yet another of our colleagues, Rich Duprey, pointed out earlier this month, is that a merger between SABMiller and Molson Coors (NYSE: TAP  ) could have sufficient scale to challenge the King for its price-setting crown.

Margins	3/06	6/06	9/06	12/06	3/07	6/07
Gross	35.7%	35.5%	35.7%	35.3%	35.4%	35.2%
Operating	17.1%	17.2%	18.1%	17.3%	17.2%	17.0%
Net	11.4%	11.6%	12.9%	12.5%	12.5%	12.6%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
The stock currently trades for nearly 20 times trailing earnings, and 32 times trailing free cash flow. With analysts expecting less than 9% annual profit growth over the next five years, I consider A-B overpriced by either measure. Sure, maybe the King will surprise us and turn in double-digit profit growth. But with its U.S. archrival now getting bigger, I wouldn't bet on it.

"Should Anheuser-Busch shareholders be concerned?" Michael Olsen, analyst at Motley Fool Inside Value -- where we have kept A-B on our recommended list for the past two years -- addressed this question in our October update. Sign up for a free 30-day trial to read Michael's thoughts and see why our deep-value diggers are holding onto the stock.