About Anheuser-Busch
Instances in which companies take devout stances on naturally contentious societal issues has exponentially risen within the last handful of decades.
From our vantage point, this is neither a good nor bad thing, but rather the way in which the world of business is moving and companies across the board are just adapting, perhaps through issuing public statements across their social media accounts, throwing a few hundred thousand dollars at a few charities and/or readjusting their marketing strategies to appeal to certain groups across the human spectrum.
Some might say this is a good thing and that companies should continue focusing on pursuing these matters and others might contend and say that companies should solely stick to focusing all of their time and other resources on developing and selling a choice product.
We’re not going to make a call favoring one side or the other, but it can be seen that there can be a real debate with plenty of solid points on both sides.
Instead, we’re more interested in discussing and analyzing the stock of a company that has certainly made the rounds and has gotten a lot of flack for a recent beer commercial.
The company in question is none other than Anheuser-Busch, but even more specifically, one of its prized subsidiaries, Bud Light.
Although it has become increasingly common for companies to pursue new initiatives and attempt to successfully appeal and tap into new demographics, many might say that Anheuser-Busch missed the mark on this one.
While we are certainly not experts on marketing, both those who are more liberal and those who are more conservative seem to have a lot of negative things to say regarding the company’s recent ad.
As subjective societal stances and objective business continue to mix, it may very well be the case that Bud Light and its parent company Anheuser-Busch experience a decline in quarterly and annual revenue due to some of its previous customers being deeply offended and subsequently vowing to not consume any of the company’s products ever again.
This is why this is important to numbers-focused investors.
And by the way, the company has a substantial alcoholic beverage portfolio.
The company’s beer footprint is so large that some peg its global market share to 31.3%.
Notching nearly a third of the world’s entire base of beer consumers ain’t that bad from a business perspective.
However, if even a small sliver of this sample set took offense to the recent ad and opted to buy from the company’s competitors instead, this could be a self-inflicted long-term headwind that just didn’t need to exist in the first place.
Regardless of what actually ends up happening, that’s a little bit about Anheuser-Busch, its line of business, its recently heightened media presence and the scale of its business.
We’ll also briefly concede that for a handful of reasons, good and bad, beer is just popular, easy to access and inexpensive enough to be a recession resistant product. In fact, we might even venture to guess that as the economy weakens, sales on products such as beer and cigarettes remain resilient or might even go up a little given that many turn to alcohol or increase their consumption thereof when they are depressed and/or struggling financially.
As sad as it truly is, it is nevertheless likely true.
Putting all of this together, let’s look at Anheuser-Busch’s core financial statements and relevant metrics to see how this company is doing and whether or not one should consider investing in its shares for the long haul.
Anheuser-Busch’s stock financials
Weighing in with a market capitalization of $113.21 billion, a share price of a hair under $64, a price-to-earnings (P/E) ratio of 21.87, all while issuing an annual dividend of $.82, the company’s shares (NYSE: BUD) aren’t wowing us by any means.
Particularly, we aren’t thrilled about having to pay a premium (albeit a small one) for a more than established business (founded in the 1850s), especially in this current market environment where valuations have generally been coming down, yet we’d seemingly still have to overpay for this company’s stock (NYSE: BUD) if we hypothetically bought some shares today.
Other than that, we don’t have much else to say regarding the other given preliminary information, as it is pretty bland, as we already know this company is gigantic and its dividend is rather muted, at least compared to other blue chip companies we have analyzed in the past.
As it relates to the company’s balance sheet, Anheuser’s executive team has done a solid job at taming the amount of the company’s total liabilities well below that of its total assets.
For instance, its total assets come in at around $213 billion whereas its total liabilities sit soundly below at $139.5 billion, which to us is an overall comfortable margin, as we sympathize with the fact that this company has a considerable amount of national and global operations and, of course, expenses that naturally follow.
As long as the company’s executives maintain this overall total asset-heavy balance sheet structure, you’re not going to be hearing many (if any) complaints from our end.
Moving onto the company’s income statement, total annual revenues since 2018 have been just about as flat as we had initially expected, on average floating in the mid-to-high $50 billion zip code, reaching a higher level between 2021 and 2022, rising from approximately $54 billion to $57 billion in 2022.
This increase doesn’t really excite us in the slightest, as the company, like most other businesses, probably hiked its prices to combat added supply chain costs and inflation and therefore didn’t likely tap into a new promising market or experience much meaningful organic growth.
Additionally, we didn’t expect the company’s total annual revenue to prove our initial recession resistant hypothesis partially wrong.
Namely, the company reported a slip in total annual revenue in 2020, as the preceding year Anheuser-Busch reported revenues of just about $52.3 billion, coming down a bit the next year to $46.8 billion.
Frankly, we expected revenue to hold up at or near $53 billion, however, it doesn’t appear as though some of the company’s customers are as price inelastic as we had initially assumed.
In the grand scheme of things, the company scooping up around $7 billion less in terms of total annual revenue between 2019 and 2020 won’t keep us up at night, but what might is the fact that its consumers might not be as brand loyal during times of economic distress.
From the perspective of the cash flow statement, COVID-19 wasn’t exactly a walk in the park for Anheuser-Busch either.
Specifically, the company’s net income in 2019 stood at a little under $10 billion and subsequently plummeted to $147 million in the year that followed.
To us, that is a gigantic deal and signifies that this company is going to have troves of trouble if another COVID-19 or public health-related threat resurfaces and forces many of the company’s retailers and other strategic sellers to temporarily or even permanently close shop.
Think about it.
Anheuser-Busch sells a lot of its beers through venues where a lot of people convene.
For instance, your local neighborhood restaurants, national chains or local joints, sporting venues from small town high school football games to professional sports championship matches and countless other places where many get together and bond over a beer.
Many of these venues were closed to the public during what has so far been the worst of COVID-19.
Sure, it makes sense that during this time period the company’s net income would weaken, but that doesn’t make it any less frightening that it fell this hard.
Thankfully, however, during that same year Anheuser-Busch was able to eke out over $10 billion in total cash from operations, a comparably normal level relative to other years.
This being the case, it seems as though expenses were simply eating this company alive in 2020.
Noted.
Anheuser-Busch’s stock fundamentals
When it comes to scoring a competitive trailing twelve month (TTM) net profit margin, this company has done just that.
For instance, according to TD Ameritrade’s platform, its TTM net profit margin is 13.15% compared to the industry’s average of 13.06%.
While these are obviously close to each other, we’re happy to see that the company’s TTM net profit margin still tops that of the industry’s (on average), as this is a very competitive space (as most business is), brushing up against the likes of Molson Coors, FEMSA (has an ownership stake in Heineken) and Boston Beer Company, just to name a few of the stronger national players.
Regarding the company’s TTM returns on assets and investment(s), both of Anheuser’s lag the industry’s average by modest margins, according to the figures displayed on TD Ameritrade’s platform, however, this isn’t all that surprising to us since Busch is a considerably larger company than many of its competitors and thus has a correspondingly larger amount of operations, which usually means it can take longer to retrieve returns from those operations and the assets and investments made by the company.
Should you buy Anheuser-Busch stock?
Paying a premium for a seasoned company in this current market environment, especially given that valuations across the board are likely to continue deflating as the present recession deepens, doesn’t feel right.
We don’t view Anheuser-Busch as any sort of exception in this matter.
While the company does have incredible brand recognition and ubiquity, at the end of the day it is the numbers and core financials and other relevant figures that guide our investment decision making.
That being said, Busch has a great TTM net profit margin and a more than solid balance sheet, however, the company’s net income decline during the brunt of COVID-19 doesn’t exude confidence from our end.
In addition to the company’s current valuation, we give its stock a “sell” rating at this time.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.