RBC Capital Markets has turned more bullish on Anheuser-Busch InBev, the world's largest brewer, arguing that the reasons investors have avoided the stock are losing their force. In a note published Thursday, the bank raised its price target on AB InBev to €95 from a previous level, while suggesting that the company's margins, cash flow, and debt reduction are being underestimated by the market.
The note's headline claim is that the "reasons not to own" AB InBev now look "threadbare." RBC points to the company's substantial exposure to emerging markets, where beer demand is still growing, as a key positive. It also argues that currency movements, which are often seen as a drag on earnings for multinational companies, could actually help the brewer over the next year.
Why the bear case is fading
AB InBev, which owns brands like Budweiser, Stella Artois, and Corona, has faced a challenging few years. In developed markets, beer consumption has been flat or declining, and the company has had to contend with rising costs for ingredients, packaging, and logistics. Its high debt load, a legacy of its acquisition of SABMiller in 2016, has also weighed on the stock, as higher interest rates made that debt more expensive to service.
But RBC's analysts believe the picture is improving. They expect the company's operating margins to expand, driven by cost savings and a shift toward higher-priced premium beers. They also forecast that AB InBev's leverage—its debt relative to earnings—will fall well below 3 times by the end of 2026. That would be a significant milestone, giving the company more financial flexibility and potentially allowing it to return more cash to shareholders through dividends or buybacks.
The bank also highlights the potential for currency tailwinds. Many multinational companies complain that a strong dollar or euro hurts their overseas earnings when converted back to their reporting currency. But RBC expects exchange rates to add about half a percentage point to AB InBev's profit margins over the next year, a reversal of the usual narrative.
Emerging markets: the growth engine
A central part of RBC's thesis is AB InBev's presence in emerging markets, particularly in Africa, Latin America, and Asia. In these regions, a growing middle class and rising disposable incomes are driving demand for beer, even as consumption stagnates in mature markets like the US and Europe. The company has been investing in local brands and distribution networks to capture this growth.
That exposure is a double-edged sword, however. Emerging-market currencies can be volatile, and economic downturns in those regions can hit sales. But RBC argues that the long-term growth potential outweighs the short-term risks, and that the market is not giving AB InBev enough credit for its position in these fast-growing markets.
What it means for investors
For everyday investors, the RBC note is a signal that at least one major bank sees value in AB InBev's stock after a period of underperformance. The new price target of €95 implies meaningful upside from current levels, though it's important to remember that price targets are just one analyst's opinion and can be wrong.
The broader takeaway is that AB InBev's financial health appears to be improving. Falling leverage, stronger margins, and potential currency help could make the company more attractive to income-focused investors, as it may lead to higher dividends or share buybacks. However, the stock remains sensitive to global economic conditions, consumer spending trends, and currency fluctuations.
Investors should also note that the beer industry is facing long-term challenges, including changing consumer preferences, with younger generations drinking less alcohol and turning to alternatives like spirits, hard seltzers, and non-alcoholic beverages. AB InBev has been trying to adapt by expanding its portfolio of low- and no-alcohol products, but it's a competitive landscape.
RBC's optimism is a counterpoint to the bearish view that has dominated the stock in recent years. Whether the case against AB InBev is truly wearing thin will depend on the company's ability to deliver on its financial targets and navigate the shifting consumer environment.
For context, other consumer staples companies have also been under pressure as investors rotate toward growth sectors. Imperial Brands, another consumer staple, recently announced a £1.5bn buyback, showing that some firms in the sector are trying to boost shareholder returns. Meanwhile, T. Rowe Price's struggles with outflows highlight the broader challenges facing traditional asset managers, though that's a different industry.
As always, investors should do their own research and consider their own financial goals before making any decisions. Analyst notes like this one are useful for understanding market sentiment, but they are not a substitute for a diversified portfolio and a long-term investment strategy.
