Leading alcoholic beverage maker Anheuser-Busch InBev (NYSE:BUD) has been under pressure due to the severe backlash it faced when transgender influencer Dylan Mulvaney promoted its highly popular Bud Light beer brand on her social media. Despite the controversy, Microsoft (NASDAQ:MSFT) co-founder Bill Gates purchased 1.7 million BUD shares for $96.6 million in Q2 2023 via the Bill & Melinda Gates Foundation Trust (confirmed by a 13-F SEC filing this week). While BUD shares have declined about 7% year-to-date, most Wall Street analysts remain bullish on the stock and see an attractive upside from current levels.
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BUD’s Q2 2023 Results Reflect Resilience
The U.S. sales of Anheuser-Busch InBev’s Bud Light brand have slumped since the controversy over the marketing campaign with the transgender influencer began in April. The controversy knocked off Bud Light as the top-selling beer brand in the U.S., making way for Constellation Brands’ (NYSE:STZ) Mexican brand Modelo Especial. The backlash also impacted sales of AB InBev’s other brands in the U.S.
Despite the decline in the U.S. volumes, AB InBev managed to beat analysts’ Q2 2023 earnings expectations. The company’s second-quarter underlying earnings per share (EPS) declined to $0.72 from $0.73 in the prior-year quarter, but surpassed analysts’ consensus estimate of $0.68.
Revenue grew 7.2% to $15.1 billion, as higher prices more than offset the 1.4% drop in volumes. The decline in U.S. volumes was partially offset by the strength in Asia Pacific. However, the top line fell short of the Street’s expectation of $15.4 billion.
Wall Street Remains Bullish on BUD Stock
Reacting to the Q2 2023 results announced in early August, RBC analyst James Edwardes Jones said, “Given Bud Light’s travails this is an impressive demonstration of AB InBev’s resilience and diversification.”
Similarly, on August 16, Deutsche Bank analyst Mitch Collett, who has a Buy rating on BUD stock, highlighted the strength in the company’s global business, which offset the weakness in U.S. sales. The analyst noted that an August survey of U.S. consumers indicated notable signs of improvement for the Bud Light brand.
Collett said that the proportion of beer drinkers who are no longer buying the Bud Light brand reduced by 190 basis points to 19% in August compared to July. Further, the percentage of consumers buying less Bud Light reduced by 170 basis points. Meanwhile, the percentage of beer drinkers buying more increased by 320 basis points.
Collett finds BUD stock’s valuation attractive and expects a rebound in the Bud Light brand next year.
Looking ahead, the company is focused on expanding its premium brands, Beyond Beer portfolio, strengthening its direct-to-consumer (DTC) channel, and optimizing business through disciplined expense management and efficient allocation of resources.
Last month, AB InBev sold eight beer brands to cannabis company Tilray (NASDAQ:TLRY) in an $85 million deal. The deal is expected to strengthen Tilray’s position in the U.S. craft beer market. While AB InBev continues to optimize its portfolio, the company assured that craft beer remains a key aspect of its growth strategy to enhance its position in the premium beer segment.
Is BUD a Good Stock to Buy Now?
Wall Street’s Strong Buy consensus rating on BUD stock is based on six Buys and two Holds. The average price target of $68.91 implies about 23% upside.
Conclusion
Several analysts expect Anheuser-Busch InBev’s Bud Light beer brand to recover once the controversy fades in the U.S. market. Meanwhile, the strength in the company’s key markets outside North America is expected to drive top-line growth.
The recent purchase of BUD shares by Bill Gates’ foundation trust has brought the focus back on the company’s strengths. As per TipRanks’ Hedge Fund Trading Activity Tool, hedge funds have a Very Positive confidence signal on BUD stock and increased their holdings by 2 million shares in the last quarter.
