It’s been a tough ride for Anheuser Busch (NYSE:BUD) shareholders. The stock has been under immense pressure, and it’s not just because of the novel coronavirus. Anheuser Busch stock hit its 2020 high on the first trading day of the year. Ouch.
From there, shares fell 61% to the March low. Even after BUD’s meager bounce, the stock is still down 50% from its 2020 high. Zooming out to the one-year high — which was met in July — Anheuser is down more than 58%.
Despite some negatives, Anheuser Busch stock represents value all the way down. Let’s have a closer look.
A Quick Look at Anheuser Busch Stock
There’s no easy way to put this: shares have been obliterated. A look at the monthly chart shows as much. Less than a year ago, BUD stock was fighting to push through $100. Now it’s clinging to the $40 to $42 area for its life.
This area — particularly the upper end of this $2 range — was a major multi-year breakout area in 2010 to 2012. Former resistance became support and Anheuser Busch stock exploded higher.
Click to Enlarge
So far, this area is acting as support and we’d like to see that remain the case. However, should Anheuser Busch stock lose support, we cannot rule out a retest of the lows. While it’s a clear value play, we have to be cognizant of the poor technicals.
A break of support puts the March low of $32.58 in play. It also puts that 2009 low in play near $30. As far as the technicals are concerned, the bottom line is this: A break of current support gives long-term buyers a reasonable risk/reward should we retest the lows.
That’s where we want to be buyers.
The Beer Industry Now
Click to Enlarge
The beer industry is one of two tales. On the one hand, alcohol demand is up considerably among consumers. As they hit up big-box retailers for supplies, beer, wine, and booze are at the top their list. According to Nielsen, beer sales are up 17.7% over the trailing four weeks and 13.1% over the trailing 12 weeks.
Unfortunately, Anheuser isn’t seeing the same demand from consumers as some of its peers. The company’s year-over-year beer sales over the last four weeks are up 9.8%. While solid and ahead of Molson Coors (NYSE:TAP), it’s below the industry average, noted above, as well as below its peers like Constellation Brands (NYSE:STZ) and Boston Beer (NYSE:SAM).
Additionally, commercial sales have become a massive headache. Think stadiums, restaurants, and other venues serving alcohol. In fact, some say this may become a billion-dollar problem for the industry, as they must now figure out what to do with so much excess supply.
Breaking Down BUD Stock
Current estimates call for earnings of $2.32 per share this year. If it comes to fruition, that’s down 43% from $4.08 per share in 2019. The decline in earnings far outpaces the expected decline in sales, which calls for a drop of “just” 14.7%.
The beer industry is difficult. When overall demand turns lower (remember commercial buyers), it can’t come back.
For instance, say 5G investments take a pause in March. In April, those investments may come back as companies that eventually have to get on board with the new technology. For beer, that’s not the case. If a stadium is closed in April and open in May, it’s not going to order beer for April and May, just May.
In short, lost sales are lost sales for the beer industry and the stock prices reflect that reality. On the plus side, analysts expect a 10% rebound in revenue for fiscal 2021, along with a 48.7% rebound in earnings. Should the economy come back to life sooner than expected, then perhaps analysts will be too negative on 2020 as well.
There lies the opportunity for Anheuser Busch stock. While the company faces a tough situation and carries a bloated balance sheet — with net debt north of $90 billion — it will eventually return to business as usual.
If we get a retest of the lows, Anheuser Busch stock will be 68% off the one-year high and 74% off the all-time high. That to me is a buying opportunity for long-term investors.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
