Without getting into all the gory details, Anheuser-Busch (NYSE:BUD) got itself into hot water last year with its Bud Light brand. The beer company (which also owns brands like Corona and Stella Artois, among others) decided to promote a marketing campaign involving transgender influencer Dylan Mulvaney. However, conservative customers did not appreciate the move, resulting in a longstanding sales blow. It’s still hurting. Fortuitously, though, a slowing consumer economy could reignite Bud Light’s business model: cheap beer. Therefore, I am bullish on BUD stock.
Anger Continues to Cloud BUD Stock
Last year, I stated that while the political uproar over Anheuser-Busch was distracting, BUD stock might have a chance to work through the mess. To bolster the argument, I mentioned Nike (NYSE:NKE). A few years back, Nike was at the forefront of an arguably much more incendiary controversy.
As you may recall, former NFL quarterback Colin Kaepernick caused outrage when he began kneeling during performances of the national anthem during NFL games to protest police brutality targeting communities of color. To be sure, it’s an important and ongoing topic. However, the optics of disrespecting the flag were too much for many Americans.
Nike continued to support Kaepernick and NKE stock is well up from September 2016, when Kaepernick started taking a knee. However, a similar statement cannot be made for Anheuser-Busch.
In April of last year, Mulvaney uploaded a sponsored video featuring Bud Light. Since then, BUD stock can perhaps be best characterized as entering a sideways consolidation phase. In other words, it’s been a frustrating ride for stakeholders.
If that wasn’t enough, sales of Bud Light continued to feel the heat one year after the controversy. During Anheuser-Busch’s first quarter, the company – which is based in Belgium – saw a 2.6% increase in worldwide sales. However, it suffered a 9.1% decline in the U.S. Not surprisingly, given the context, a drop in Bud Light volume primarily drove the red ink.
To be blunt, I was wrong.
Fundamentally, I thought that the emotion of anger was too onerous to sustain. If Americans can forgive (or forget) Kaepernick’s protests and Nike’s support of it, surely, I reasoned, they can forgive Bud Light. For more than two decades, Bud Light has been the U.S. market’s top-selling beer.
It’s the Captain America of lagers, yet the anger persists. No matter – when all else fails, money talks.
Bad News Is Good News for Anheuser-Busch
Despite some encouraging trends in the economy, the nuanced picture presents some concerns. Consumer data shows that households earlier this year have been exercising more restraint on certain discretionary items such as clothing and furniture. In addition, many folks even trimmed their spending on health and personal care.
It’s also clear that these headwinds aren’t letting up. Earlier, business headlines screamed that credit card debt loads collectively exceeded the $1 trillion mark. Not only that, but rising delinquency rates underscored the numerous challenges facing consumers. However, it’s also true that people are prioritizing experience-based services, which explains why spending at bars and restaurants has been surprisingly robust.
So, what we have here are two clashing elements: rising financial challenges and sustained demand for experiences. Something, somewhere has to give, and BUD stock could be the beneficiary.
How so? Travel prioritization trends – which effectively mean that households are prioritizing experiences in their discretionary budgets – point toward an unwillingness for Americans to compromise on their entertainment-related expenditures.
If that’s the case, then the mechanism by which consumers are entertained must be cheapened. That means that if you’re used to traveling in business class, you’re going to have to downgrade to economy class. And that’s what Bud Light is, the economy class of lagers.
Yes, it’s true that BUD stock has tremendous competition in the space. However, Bud Light didn’t become America’s favorite beer for over two decades by happenstance. No, people (for whatever reason) love the taste of the light beer. If it tasted awful, consumers most likely would have made the shift well before the aforementioned controversy.
It’s a Glass Half Full
Interestingly, the impact on BUD stock following the Mulvaney incident is largely open to interpretation. Conservatives might view the current consolidation as a negative for Anheuser-Busch. However, it’s also fair to say that with all the negative publicity of Bud Light going “woke,” the market impact was muted. That could be interpreted as a win.
Further, the alcoholic beverage maker performed well in Q1. It posted earnings per share of 75 cents on revenue of $14.5 billion. Prior to the disclosure, analysts anticipated earnings of 72 cents on sales of $14.4 billion.
For the full year, analysts are looking for EPS of $3.42 on revenue of $60.2 billion. However, with the company performing the way that it has, combined with “favorable” economic trends, it wouldn’t be shocking to see Anheuser-Busch reach the top end of the analyst spectrum. That would call for EPS of $3.68 on revenue of $64.66 billion.
Is BUD Stock a Buy, According to Analysts?
Turning to Wall Street, BUD stock has a Strong Buy consensus rating based on four Buys, one Hold, and zero Sell ratings. The average BUD stock price target is $74.88, implying 16.62% upside potential.
The Takeaway: Economic Challenges Could Bolster BUD Stock
On the surface level, the sustained anger tied to Bud Light’s controversial marketing campaign appears to be a risk factor for BUD stock. However, it’s also true that American consumers are generally uncompromising, seeking experience-based services despite rising economic challenges. Still, something has to give, and that may mean a return to cheap (and apparently tasty) lagers. Given its history, no one does it better than Anheuser-Busch, meaning this BUD’s for you.
