When football quarterbacks attempt a pass, they never throw it at their receivers. They throw the ball where their receivers will eventually be. This technique resembles how investors approach a prominent stock taking a steep nose dive. Instead of focusing on the direction the stock is going, they contemplate where it will end up.
In the case of Anheuser-Busch InBev (NYSE: BUD), many investors are trying to determine where this stock will end up. An impassioned social media campaign has effectively dethroned the beer maker's star product, Bud Light, as the nation's number-one-selling beer. The primary reason for this turnabout is many Bud Light customers stopped buying the beer after Bud Light's executives paired with a transgender social media influencer named Dylan Mulvaney to launch a shipwreck of a marketing campaign.
As a result of the backlash from the controversy, the stock price of Bud Light's parent company, Anheuser-Busch InBev, declined about 20% over two months. It dropped from a high of $66.39 on March 31 to $53.21 on May 31. In mid-June, this stock price hovered around $56. However, Bud Light sales continue to decline. So, the big question is where the BUD stock price will eventually end up.
To get an indication, let's examine all the aspects involved.
The Dylan Mulvaney Controversy
A fierce ideological battle between liberals and conservatives is extremely intense in the U.S. today. Unfortunately, the Bud Light marketing team positioned its product in the center of a fire pit of controversy. The friction points were Bud Light's partnership with Dylan Mulvaney and unflattering remarks made by Bud Light marketing VP Alissa Heinerscheid about Bud Light's target market.
Mulvaney has over 10.8 million followers on different social media platforms. Although many believe Mulvaney's gender identification was the catalyst, the underlying issue was many in Bud Light's target market of 20-something males and females rejected the beer company's efforts to promote an ultra-liberal agenda to its customers. In other words, this was an ill-fated attempt by Bud Light executives to boost their rating in the
Corporate Equality Index, even though the company currently has a perfect score.
After Mulvaney posted a video on April 1, BUD stock dropped 1.8%. The mainstream media and social media influencers had the spark they needed to sensationalize the backlash. However, Anheuser-Busch's impressive year-to-date share price made this price drop seem meager. And most analysts believe the backlash creates a buying opportunity instead of a reversal of fortune.
Why Anheuser-Busch Inbev Will Be Fine
The news of Modelo Especial dethroning Bud Light as the number 1 selling U.S.dominated most talk shows and social media platforms for weeks. But guess which beer maker is Modelo's parent company? It's the same company that owns the nation's third-best-selling beer, Miller Lite? Anheuser-Busch InBev not only owns these two top beer brands, but it also produces 500 beers, including Budweiser, Corona, and Stella Artois.
Belgian-Brazilian brewer InBev acquired American brewer Anheuser-Busch to form Anheuser-Busch InBev in 2008. Before the acquisition, InBev was the third-largest brewing company globally, Anheuser-Busch had the top spot, and SABMiller was number two globally. So when Anheuser-Busch InBev acquired SABMiller, it completed a merger of the previous top three beer brewers worldwide.
Unless beer drinkers boycott all three top-selling beers in the U.S., Anheuser-Busch is in no danger of collapsing. Yahoo Finance quoted Citigroup analyst Simon Hales as saying," The recent backlash in some parts of the U.S. to Bud Light’s new advertising campaign with Dylan Mulvaney is overdone,” and “recent share price weakness provides an attractive buying opportunity.”
What's Really Driving Anheuser-Busch?
When Anheuser-Busch InBev acquired SABMiller in 2016, it assumed over $120 billion in debt. This sent spooked investors and a selling spree ensued, resulting in a drop of 56% percent in its stock price. Then, Covid 19 closed on-premises bars and restaurants in 2020, hamstringing the beer maker's earning power.
Despite these challenges, Anheuser-Busch Inbev reduced the SABMiller debt by $40 billion over the last six years. This drawdown of debt was an impressive accomplishment. But many investors were not amused because the company cut its dividend to generate $8 billion in free cash flow each year.
However, this current investor attitude toward Anheuser-Busch can appeal to many long investors due to the company's continuing deleveraging strategy. So, it's highly likely that the beer maker will reach a comfortable debt level to the point of redirecting its enormous free cash flow to increased dividends and buybacks.
What Makes BUD Stock Appealing?
Many people still drink beer through recessions and even depressions. In fact, they may even consume more. Since it pays a forward
dividend of 1.25%, most investors consider BUD stock a defensive investment. It's the type of dividend-paying stock that attracts investors whenever hard economic times seem imminent.
In addition, investors have other compelling reasons to invest in BUD Stock, including;
- The company's 12-month P/E ratio of 22.38x is slightly better than the sector's P/E ratio 2.84x.
- Anheuser-Busch's trailing price-to-book (P/B) ratio of 1.76x is better than the 2.62x sector median.
- Currently, the company's stock price is in the 56 range. But CNN Business reports 8 analysts offer 12-month price forecasts with a median target of 68.50, a high estimate of 76.00, and a low of 60.
However, you should temper these positives with some realities of the present. For example, BUD's trailing-12-month earnings per share (EPS) fails to justify its current trading price.
Making an Anheuser-Busch Investing Decision
Despite the distractions caused by the Dylan Mulvaney boycott, many stock analysts agree that Anheuser-Busch can leverage its substantial market share in the beer brewing sector to reward value and income investors in the foreseeable future.
Your decision to invest in Anheuser-Busch is a personal and financially unique one. However, when considering your investment approach, consider a buy-and-hold position for this stock.
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