Global beer giant Anheuser-Busch InBev (BUD 0.12%) has had a rough summer. Some customers began boycotting Bud Light after an ill-received marketing campaign in April. The stock is down 15% from its highs in the spring.
The boycott was enough to tank the company's North American sales to retailers by 14% year-over-year in the second quarter. However, recent channel research shows customers' ill will toward Bud Light may have peaked and begun recovering.
It's a great time to revisit the stock and determine whether investors should buy it as sentiment improves. Here is what you need to know.
The boycott's worst could be ending
Deutsche Bank surveyed U.S. consumers this month and found that the number of consumers avoiding the Bud Light brand fell to 19% from 21% in July. Additionally, the percentage buying less Bud Light declined by 1.7 percentage points, while those buying more Bud Light grew by 3.2 percentage points. In other words, Bud Light consumers are seemingly warming back up to the brand.
This is a relatively small sample size, but improving numbers in the coming months would signal a clear trend of an eventual brand recovery. Interestingly, the Bud Light brand couldn't sink the ship in Q2. Anheuser-Busch grew companywide revenue by 7.2% year-over-year despite the Bud Light declines in North America.
This shows how resilient a business can be when you are the most significant player in a traditionally lucrative alcohol industry. The company converts anywhere from 12% to 20% of its sales into free cash flow in a given year.
Anheuser-Busch's growth outlook improving
Analysts have grown increasingly optimistic about Anheuser-Busch's business outlook despite the boycott. Earnings growth estimates have steadily risen throughout the spring and summer and now point to long-term earnings-per-share (EPS) growth nearing 11% annually.
BUD EPS LT Growth Estimates data by YCharts.
A couple of factors could be driving this. First, the company is seeing strong global performance from its core brands, like Budweiser, Stella Artois, and Corona. Outside of their home markets, the combined revenue for these brands is up nearly 17% year over year through the first half of 2023.
Second, Anheuser-Busch is working to deleverage its balance sheet. The company has $73.8 billion in net debt, of which 96% is at a fixed interest rate and immune from rising rates. Little debt matures over the next several years, allowing management to pay the debt down proactively.
Image source: Anheuser-Busch InBev.
Interest on debt reduces a company's earnings, so the company should get a boost to its bottom line as it retires debt over the coming years. That's a potential factor in the company's improving earnings growth outlook.
Is the stock a buy?
Today, the stock trades at a forward P/E of just over 18, compared to the broader market's forward P/E of 20. Anheuser-Busch is well off its lows in the mid-$40s, but the stock could still be considered a solid deal for long-term investors.
The broader market grows at an average of 10% annually over the long term, and investors can get Anheuser-Busch shares at a lower valuation despite having an estimated earnings growth rate of nearly 11%.
BUD PE Ratio (Forward) data by YCharts. PE Ratio = price-to-earnings ratio.
One could argue that Anheuser-Busch's balance sheet filled with debt is the company's most significant issue. Fortunately, management can address that, and the potential softening of its Bud Light boycott might be icing on the cake. If you can look five years out, Anheuser-Busch is a robust consumer-staples company that might have brighter days ahead.
