The sales of Bud Light have been on a continuous decline due to an ongoing boycott against the brand. However, Morgan Stanley analysts believe that the impact of this boycott has already been factored into the shares of Bud Light’s parent company, Anheuser-Busch InBev (AB-InBev). They assert that AB-InBev’s global reach and the decreasing costs of beer ingredients will help boost sales and margins in the future, even if the struggles in the U.S. persist into the next year.
Recently, Morgan Stanley upgraded its rating on AB-InBev from equal-weight to overweight. In addition, the firm raised its price target for the company’s stock to $68.50 from $64. As a result of this positive outlook, AB-InBev’s shares saw a 0.4% increase on Thursday.
Looking ahead, AB-InBev’s second-quarter results, which are scheduled for August 2, are expected to provide further clarity for investors. The analysts believe that these results will shed light on the extent of the impact caused by the Bud Light situation.
While investors are currently waiting for AB-InBev to quantify the effects of the boycott, Morgan Stanley anticipates that the upcoming H1 results will serve as a clarifying moment. They argue that although the challenges faced by Bud Light in the U.S. have stabilized, the current share price of AB-InBev does not reflect the potential for gross margin recovery and de-leveraging in the coming year.
The boycott against Bud Light was initiated in April after the brand briefly partnered with Dylan Mulvaney, a transgender influencer. The backlash resulted in a significant decline of over 20% in Bud Light sales. Despite Mulvaney’s claim of experiencing “bullying and transphobia,” she mentioned that Bud Light never reached out to her. The partnership and subsequent boycott generated widespread controversy and negative publicity for the brand.
The Decline in AB-InBev’s Beer Brands Benefits Rivals
The decline in sales for AB-InBev’s beer brands has had a ripple effect on the company, benefiting its competitors. Modelo Especial, a beer licensed to sell in the U.S. by Constellation Brands but brewed in Mexico by AB-InBev, has recently surpassed Bud Light as the best-selling beer in the country.
Anheuser-Busch’s Global Presence
Despite the challenges faced in the U.S., Morgan Stanley analysts highlight the strength of Anheuser-Busch’s worldwide reach. They project that a 13.5% drop in U.S. sales would only result in a 4% decrease in overall sales for the company. The analysts also anticipate double-digit growth in regions like South America and the Asia-Pacific, which would contribute to an overall organic sales growth of 6% for the company in fiscal 2023. Furthermore, they anticipate improved profit margins with a reduction in commodity costs and sales incentives for U.S. beer sellers.
A Challenging U.S. Market
While the analysts remain optimistic about overall beer sales and profits, they do not foresee a significant improvement in the U.S. market. They expect the 13.5% drop in U.S. sales to decrease slightly to a 12% drop in AB-InBev’s fiscal 2024.
Positive Outlook for Beer Sales and Profits
Despite the challenges in the U.S., the analysts maintain a positive outlook for beer sales and profits in the coming year. Falling ingredient costs are expected to benefit brewers as a whole. Additionally, the surge in demand for spirits during the pandemic has normalized, with U.S. consumers returning to their preference for beer.
AB-InBev’s stock has declined by 1.4% this year, while the S&P 500 Index has seen an 18.9% increase over the same period.