Anheuser-Busch InBev (BUD -0.97%), the world's largest brewer, lost nearly half its value over the past five years. It struggled with the saturation of the beer market, declining beer consumption rates in developed markets, competition from other alcoholic drinks, and rising commodity costs.

AB InBev was already on shaky ground when the pandemic started last year. The closures of bars and restaurants then caused its sales to tumble, which forced it to halve its dividend last April to conserve cash. It skipped its following interim dividend in October before announcing a final dividend of 0.50 euros ($0.60) for the full year this February -- compared to a combined payout of 1.30 euros in 2019.

Three beer drinkers clink their pilsner glasses.

Image source: Getty Images.

But over the past few months, rising vaccination rates have turned the market's attention back toward reopening plays, while rising bond yields are sparking a rotation from growth to value stocks. Will those shifting market trends make AB InBev a worthy buy again?

Reviewing AB InBev's priorities

AB InBev sells about 630 brands of beer globally, including Budweiser, Michelob, Stella Artois, Cass, Corona, and Hoegaarden. It's gradually running out of brands to acquire as many younger drinkers turn toward other alcoholic drinks like seltzers and spirits.

AB InBev is relying on three main strategies to keep growing. First, it's "premiumizing" its flagship brands with new versions and marketing campaigns, which enables it to raise prices to offset slower shipments.

Second, it's targeting younger drinkers with new products like hard seltzers, lower-calorie beers, and non-alcoholic beers. Finally, it's expanding its direct-to-consumer channel with new e-commerce initiatives.

How fast is AB InBev growing?

AB InBev's total volumes rose 1.1% in fiscal 2019, as its premiumization strategies boosted its revenue per hectoliter 3.1%. Budweiser generated robust growth in the U.S., Brazil, India, and Europe; its Corona brand fared well in markets outside of Mexico, and Stella Artois grew globally.

Bottles of unlabeled beer at a distribution center.

Image source: Getty Images.

Its total revenue and adjusted EBITDA rose 4% and 3%, respectively, for the full year. Its adjusted EBITDA declined, due to high commodity and currency costs, but it offset that contraction with its listing of Budweiser APAC in Hong Kong and the divestments of its Australian businesses.

But in fiscal 2020, AB InBev's total volumes fell 5.7% as the closures of bars, restaurants, and other businesses offset its sales through retail channels. Its revenue per hectoliter increased 2.1%, indicating its premiumization strategy was still working, but its total revenue still declined 4%.

Its margins contracted again, and its adjusted EBITDA dropped 13% without new listings or big divestments to cushion the blow. However, most of the damage occurred in the first half of the year.

In fact, AB InBev's volumes, revenue per hectoliter, and total revenue all grew year-over-year in the third and fourth quarters of 2020. That recovery, along with business reopenings worldwide, indicates AB InBev's growth should stabilize in fiscal 2021 and 2022.

Analysts expect AB InBev's revenue and earnings to rise 9% and 61%, respectively, this year. Next year, they expect its revenue and earnings to grow another 5% and 18%, respectively, which suggests its stock is fairly cheap at 18 times forward earnings. If AB InBev hits those targets, it might raise its semi-annual dividend back to pre-pandemic levels again.

But there are still plenty of challenges ahead

AB InBev's path to recovery might seem simple, but it still faces unpredictable headwinds. CEO Carlos Brito, who has led the company for more than a decade, plans to retire this year.

It could also struggle to digest its acquisition of Craft Brew Alliance, which added Kona, Appalachian, and other craft beers to its portfolio. Acquiring craft beers was once considered a viable way to reach more drinkers, but that "alternative" market has also been saturated in recent years. Constellation Brands notably bought the craft beer brewery Ballast Point in 2015, but sold it at a loss in 2020.

AB InBev is making progress in the hard seltzer market with Bud Light Seltzer, Michelob Organic Seltzer, and other products. But it faces formidable rivals, such as Mark Anthony's White Claw Hard Seltzer, and it still generates most of its revenue from traditional beers.

AB InBev is also shouldering a lot of debt. It ended the year with a net debt to normalized EBITDA ratio of 4.8, but it plans to aggressively reduce that ratio to two over the long term. Reducing that leverage as it invests in new products, premiumization methods, and marketing campaigns could be challenging, and could make it tougher to pay stable dividends in the future.

Finally, we can't be sure when the pandemic will actually end. If the pandemic drags on with new waves and variants, AB InBev could easily miss analysts' expectations for 2021 and 2022.

Stick with other reopening plays for now

AB InBev's downside might be limited by its low valuation, but its dividend is unreliable, its debt is high, and its portfolio is too fragmented. There are plenty of other reopening plays that have brighter prospects than AB InBev right now, so I can't consider it to be a compelling buy yet.