Earnings

Critical Comparison: Ambev S.A. (ABEV) vs. Anheuser-Busch InBev SA/NV (BUD)

Ambev S.A. (NYSE:ABEV) shares are up more than 6.35% this year and recently increased 3.00% or $0.2 to settle at $6.87. Anheuser-Busch InBev SA/NV (NYSE:BUD), on the other hand, is down -6.60% year to date as of 02/14/2018. It currently trades at $104.20 and has returned -2.68% during the past week.

Ambev S.A. (NYSE:ABEV) and Anheuser-Busch InBev SA/NV (NYSE:BUD) are the two most active stocks in the market based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

Growth

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect ABEV to grow earnings at a 5.33% annual rate over the next 5 years. Comparatively, BUD is expected to grow at a 23.00% annual rate. All else equal, BUD’s higher growth rate would imply a greater potential for capital appreciation.



Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. EBITDA margin of 22.45% for Anheuser-Busch InBev SA/NV (BUD).

Cash Flow 




If there’s one thing investors care more about than earnings, it’s cash flow. On a percent-of-sales basis, ABEV’s free cash flow was 8.43% while BUD converted 0% of its revenues into cash flow. This means that, for a given level of sales, ABEV is able to generate more free cash flow for investors.

Valuation

ABEV trades at a forward P/E of 25.44, a P/B of 7.49, and a P/S of 7.67, compared to a forward P/E of 20.45, a P/B of 2.77, and a P/S of 3.20 for BUD. ABEV is the expensive of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. ABEV is currently priced at a -2.14% to its one-year price target of 7.02. Comparatively, BUD is -16.85% relative to its price target of 125.31. This suggests that BUD is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.60 for ABEV and 2.30 for BUD, which implies that analysts are more bullish on the outlook for ABEV.

Insider Activity and Investor Sentiment

Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.ABEV has a short ratio of 1.42 compared to a short interest of 0.87 for BUD. This implies that the market is currently less bearish on the outlook for BUD.

Summary

Anheuser-Busch InBev SA/NV (NYSE:BUD) beats Ambev S.A. (NYSE:ABEV) on a total of 10 of the 14 factors compared between the two stocks. BUD has higher cash flow per share, is more profitable, generates a higher return on investment and has lower financial risk. In terms of valuation, BUD is the cheaper of the two stocks on an earnings, book value and sales basis, BUD is more undervalued relative to its price target. Finally, BUD has better sentiment signals based on short interest.

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