Brewing Giants Graded: Hopping Into Key Global Beer Stocks
This week, we use AAII’s A+ Investor Stock Grades to provide insight into three beer stocks. With the brewing industry becoming more diversified every day, should you consider the beer stocks of Anheuser-Busch Inbev S.A. (BUD), Heineken N.V. (HEINY) and Molson Coors Beverage Co. (TAP)?
Beer Stocks Recent News
While the brewing industry has seen a surge in various niche players such as microbreweries and craft breweries, the landscape is still dominated by a select number of major corporations. These influential companies, often multinational, play a pivotal role in shaping market trends and meeting consumer demands due to their substantial resources and extensive market reach. Product portfolio diversification is a notable trend among these giants, responding to a growing consumer interest in nonalcoholic and low-calorie beer options. The competitive nature of the market is evident, as both major and smaller companies must continually adapt to changing consumer habits and regulatory considerations in order to grow or maintain market share.
The brewing industry is a dynamic and flourishing group within the global beverage market. Worldwide, beer is the most consumed alcoholic beverage, according to Straits Research, and it ranks third after water and tea. The industry is multifaceted, with diverse segments that cater to varying consumer preferences and production scales. It encompasses macrobreweries that produce beer on a global scale, microbreweries focusing on small batches with an emphasis on craftsmanship and craft breweries striking a balance between mass production and artisanal qualities.
As reported by Straits Research, the size of the global beer market was $721.1 billion in 2022, and it is expected to grow at a compound annual growth rate (CAGR) of 6.9% to a total of $1.32 trillion by 2031. The market’s growth is expected to be driven by an increasing number of breweries and a consistent rise in demand for alcoholic beverages due to increasing standards of living and changing lifestyles.
Grading Beer Stocks With AAII’s A+ Stock Grades
When analyzing a company, it is helpful to have an objective framework that allows you to compare companies in the same way. This is why AAII created the A+ Stock Grades, which evaluate companies across five factors that have been shown to identify market-beating stocks in the long run: value, growth, momentum, earnings estimate revisions (and surprises) and quality.
Using AAII’s A+ Stock Grades, the following table summarizes the attractiveness of three beer stocks — Anheuser-Busch, Heineken and Molson Coors — based on their fundamentals.
AAII’s A+ Stock Grade Summary for Three Beer Stocks
What the A+ Stock Grades Reveal
Anheuser-Busch Inbev S.A. (BUD) is a producer, distributor and marketer of beer, alcoholic beverages and soft drinks. Its brand portfolio includes global brands such as Budweiser, Corona and Stella Artois; international brands, including Beck’s, Leffe and Hoegaarden; and local champions such as Bud Light, Skol, Brahma, Antarctica, Quilmes, Victoria, Modelo Especial, Michelob Ultra, Harbin, Sedrin, Klinskoye, Sibirskaya Korona, Chernigivske, Cass and Jupiler. The company’s soft drinks business consists of both its own production and bottling and distribution agreements with PepsiCo Inc. (PEP). Ambev, which is a subsidiary of the company, is a PepsiCo bottler. Brands that are distributed under these agreements are Pepsi, 7Up and Gatorade.
The company has a Value Grade of D, based on its Value Score of 37, which is expensive. The Value Grade is the percentile rank of the average of the percentile ranks of the price-to-sales (P/S) ratio, price-earnings (P/E) ratio, price-to-book-value (P/B) ratio, price-to-free-cash-flow (P/FCF) ratio, shareholder yield and the ratio of enterprise value to earnings before interest, taxes, depreciation and amortization (EBITDA). The company has a price-earnings ratio of 20.8, a price-to-book ratio of 1.73 and a price-to-free-cash-flow ratio of 22.7, ranking in the 57th, 52nd and 59th percentiles, respectively.
The components of the Growth Composite Score consider a company’s success in growing sales on a year-over-year and long-term annualized basis and its ability to consistently generate positive cash from its core operations. Anheuser-Busch currently has a Growth Grade of C, based on a Growth Score of 57. The company has a five-year sales growth rate of 0.5% and has seen sales increase year over year in two out of the last five years. Cash from operations has also been positive for five consecutive years.
Anheuser-Busch has a Momentum Grade of B, based on its Momentum Score of 65. This means that the stock has been strong in terms of its weighted relative price strength over the last four quarters. This score is derived from above-sector-median relative price strengths of 3.6% in the most recent quarter, –2.5% in the second-most-recent quarter and 7.5% in the fourth-most-recent quarter, partially offset by below-sector-median relative price strength of –19.3% in the third-most-recent quarter. The ranks are 66, 62, 25 and 84, sequentially from the most recent quarter. The weighted four-quarter relative price strength is –1.4%, which translates to a rank of 65. The weighted four-quarter relative strength rank is the relative price change for each of the past four quarters, with the most recent quarterly price change given a weighting of 40% and each of the three previous quarters given a weighting of 20%.
Earnings estimate revisions offer an indication of how analysts view the short-term prospects of a firm. Anheuser-Busch has an Earnings Estimate Revisions Grade of F, based on its score of 20, which is very negative. The grade is based on the statistical significance of its latest two quarterly earnings surprises and the percentage change in its consensus estimate for the current fiscal year over the past month and past three months.
Anheuser-Busch reported a positive earnings surprise of 3.6% for the third quarter of 2023, and in the prior quarter reported a positive earnings surprise of 6.5%. Over the last month, the consensus earnings estimate for full-year 2023 declined to $3.03 per share based on two upward and three downward revisions. The 1.8% decline in its earnings estimate ranks in the bottom 11th percentile of all stocks.
Heineken N.V. (HEINY) is a Netherlands-based company engaged in the brewing and selling of beer. Heineken’s product range mainly consists of beer, soft drinks and cider. The company operates through five segments: Africa, Middle East and Eastern Europe; Americas; Asia-Pacific, Europe and head office and other/eliminations. The Africa, Middle East and Eastern Europe segment includes brands such as Heineken, Primus, Amstel, Walia and Goldberg. The Americas segment includes brands such as Heineken, Tecate, Amstel, Sol and Dos Equis. The Asia-Pacific segment includes brands such as Heineken, Anchor, Larue, Tiger and Bintang. The Europe segment includes brands such as Heineken, Cruzcampo, Birra Moretti, Zywiec and Strongbow Apple Ciders. The company owns, markets and sells in more than 190 countries.
The company has a Value Grade of D, based on its Value Score of 25, which is expensive. The company has above-sector-median measures for its price-to-book and price-to-free-cash-flow ratios, which are 2.68 and 32.7, respectively. Additionally, the company has a below-sector-median price-earnings ratio at 20.3.
The company currently has a Growth Grade of A, based on a Growth Score of 89. The company has a five-year sales growth rate of 5.9% and has seen sales increase year over year in four out of the last five years. Cash from operations has also been positive for five consecutive years.
The company has a Momentum Grade of C, based on its Momentum Score of 55. The score is derived from above-sector-median relative price strengths of –2.9% in the most recent quarter and 11.9% in the fourth-most-recent quarter, offset by a below-sector-median relative price strength of –11.2% in the second-most-recent quarter and –14.3% in the third-most-recent quarter. The ranks are 54, 46, 33 and 88, sequentially from the most recent quarter. The weighted four-quarter relative price strength is –3.9%.
Heineken currently does not have a Quality Grade, as the company has null values for five of the eight variables underlying the Quality Score. To be assigned a Quality Score, stocks must have a valid (non-null) measure and corresponding ranking for at least four of the eight quality measures.
Molson Coors Beverage Co. (TAP) is a holding company. It operates through two segments: Americas and EMEA and APAC. The Americas segment consists of the production, marketing and sales of its brands and other owned and licensed brands in the U.S., Canada and various countries in the Caribbean, Latin and South America. It operates approximately nine primary breweries, nine craft breweries and two container operations. It also includes a partnership arrangement related to the distribution of beer in Ontario, Canada, and Brewers’ Retail Inc. The EMEA and APAC segment consists of its production, marketing and sales of its primary brands as well as other owned and licensed brands in various European countries and certain countries in the Middle East, Africa and Asia-Pacific. It operates 11 primary breweries, six craft breweries and one cidery in this segment.
Molson Coors has a Value Grade of C, based on its Value Score of 58, which is average. The company ranks below average for its price-to-sales, price-earnings and price-to-book ratios, which are 1.17, 54.0 and 1.02, respectively. Meanwhile, the company has one above-average ranking contributing to its Value Grade: a shareholder yield of 2.9%.
The company currently has a Growth Grade of C, based on a Growth Score of 48. The company has a five-year sales growth rate of –0.6% and has seen sales increase year over year in two out of the last five years. Cash from operations has also been positive for five consecutive years.
Molson Coors has an Earnings Estimate Revisions Grade of C, based on a score of 59, which is neutral. The company reported a positive earnings surprise of 21.9% for the third quarter of 2023, and in the prior quarter reported a positive earnings surprise of 8.9%. Over the last month, the consensus earnings estimate for the fourth quarter of 2023 stayed flat at $1.116 per share, with three upward and two downward revisions.
Molson Coors has a Quality Grade of B, based on a Quality Score of 76, which is strong. The A+ Quality Grade is the percentile rank of the average of the percentile ranks of return on assets (ROA), return on invested capital (ROIC), gross profit to assets, buyback yield, change in total liabilities to assets, accruals to assets, Z double prime bankruptcy risk (Z) score and F-Score. The score is variable, meaning it can consider all eight measures or, should any of the eight measures not be valid, the valid remaining measures.
The company ranks weakly in terms of its return on invested capital and gross income to assets, but ranks strongly in terms of its F-Score. Molson Coors has a return on invested capital of 13.4%, gross income to assets of 16.0% and an F-Score of 8 (on a scale from 0 to 9). The sector median return on invested capital is 18.8%, the median gross income to assets is 23.3% and the median F-Score is 4. Other metrics that rank below the sector median for Molson Coors are its return on assets, change in total liabilities to assets and Z-Score. Other than its F-Score, the only metric that ranks above the company’s sector median is its buyback yield, which is 0.3%, compared to the sector median of –0.2%.
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The stocks meeting the criteria of the approach do not represent a “recommended” or “buy” list. It is important to perform due diligence.
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