The U.S. population is roughly 56% vaccinated against COVID-19, which is getting people closer to resuming a "normal" way of life that included going to bars, restaurants, and the movies. Investors looking to tap into this returning-to-normal trend have been trying to find stocks that stand to benefit.
The enthusiasm for these stocks varies, with the stock for movie theater chain AMC Entertainment (AMC -0.88%) getting a lot of attention to the point where it has effectively become a symbol of the "meme stock" movement. Meanwhile, alcohol giant Anheuser-Busch InBev (BUD 1.16%) has been getting overlooked by investors.
But Anheuser-Busch may ultimately prove to be a better long-term stock for a few key reasons.
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Movie theaters are losing out to streaming
Lockdown efforts to stem the spread of COVID-19 shut down the movie theater industry for much of the pandemic. AMC has barely survived COVID-19, borrowing hundreds of millions of dollars, pushing its total debt load to $5.5 billion, and increasing its share count 271% to 400 million shares to raise the cash needed to stay open.
AMC has reopened theaters, signaling the worst could be over for the movie theater industry; however, it remains to be seen how the industry will recover. AMC's theater foot traffic was already declining before COVID-19 when attendance fell from 1.40 billion in 2006 to 1.24 billion in 2019.
During the lockdown, film studios turned to streaming services to bring content to the market, with AT&T and Walt Disney opting for on-demand movie releases. Marvel's Black Widow recently came out in theaters and on Disney+ simultaneously and did $80 million in theater sales for its debut, but did another $60 million through streaming. If companies that produce films decide it's more lucrative to go through streaming, it could worsen a long-term decline of theaters.
The math will hurt AMC investors
AMC's business will likely improve from 2020 lows, but it likely won't be enough since it wasn't exactly a strong business before the pandemic. In 2019, AMC's income from running its business was just $136 million on $5.47 billion in sales, a margin of 2.5%. AMC hasn't been profitable since 2018, so even since before the pandemic, AMC has barely scraped by.
AMC's increased share count is also harmful to investors. Think of a company as a "pie" being cut into many little slices called shares. AMC cut its own pie into 271% more slices when issuing these added shares, making each share smaller (and worth less) for investors. If AMC can return to profitability, its shares won't be as valuable because those profits would be spread among all those additional shares.
The reopening will truly benefit the beer industry
Anheuser-Busch also felt the impact of COVID-19 with many restaurants and bars closed to in-person attendance and sporting events played before empty stands. As a result, the company saw revenue fall 12% year over year in the first half of 2020. However, Anheuser-Busch saw revenue growth turn positive in the second half, and 2021 has begun with 17.2% year-over-year revenue growth in Q1, a sign that the beverage business is rebounding.
Right now, restaurants and bars are back open, and major sporting venues are opening back up to fans for the upcoming sports seasons. Beer has been a popular product for thousands of years and it will continue to be purchased and consumed pandemic or not.
Anheuser-Busch also has an emerging product category called "Beyond Beer," including seltzers, ready-to-drink canned cocktails, ciders, and malted beverages. Management expects the market for these non-beer products to grow by 45% by 2024. Anheuser-Busch identifies emerging growth categories, which could help the company remain a market leader in the alcohol business.
Anheuser-Busch is a cash flow machine
Anheuser-Busch's business generated $10.89 billion from its operations during the 2020 pandemic year on $46.88 billion in revenue, an operating margin of 23.2%. It did even better in 2019 when its margin was 26.7%, showing that Anheuser-Busch is a very profitable business in any environment.
Anheuser-Busch does have $82.7 billion in net debt, but almost none of it is due until 2024, giving Anheuser-Busch time to pay it down with the cash the business generates. The company also holds a BBB+ credit rating by Standard & Poor's, which suggests that it can meet its financial obligations.
Is AMC or Anheuser-Busch a buy?
AMC has been a hot stock in 2021 with its price up more than 900% over the past year. However, it's uncertain how long the company can justify its $22 billion market cap. The company's Q1 revenue was just $148 million, and it has no clear path to showing a profit anytime soon. Put another way, AMC's stock was worth less than $1 billion before COVID-19 and is now trading at 20 times that despite there being less revenue and more shares issued. Investors could see a huge letdown eventually if the meme frenzy slows.
On the other hand, Anheuser-Busch stock is down 46% from its multi-year highs as the factors pushing its growth are accelerating. The business generates strong cash flow and its debt levels are quite manageable both near term and long-term. The stock trades at 22 times this year's earnings, and consensus analyst estimates call for double-digit percentage earnings growth that will make the stock less expensive over time. With Anheuser-Busch making a "comeback," it appears to be the superior long-term investment.
