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Opinion: Why Bud Light brewer AB InBev isn’t an investment slam dunk — yet


If you like to pick stocks for your retirement portfolio, this ought to be a great opportunity to add some Anheuser-Busch InBev
BUD,
+1.38%

ABI,
+0.47%

or Target
TGT,
+1.61%
.
After all, both have plunged in price recently amid controversy over Pride and LGBTQ+ marketing.

Yes, they are now cheap by some measures — and certainly much cheaper than they were.

Yes, everyone has lost their minds.

And yes, this entire controversy is almost certain to blow over (more on that in a moment).

All in all, the usual signs of a great buying opportunity, right?

Even better, this is a buying opportunity that ought to unite progressives and conservatives.

Progressives might want to use their retirement portfolios to show their support for companies under fire from conservatives. Isn’t buying Budweiser and Target (and other stocks under fire over Pride issues, such as Kohl’s
KSS,
+10.48%

and North Face parent VF Corp.
VFC,
+6.53%

) an “ESG” moment?

Meanwhile, conservatives might want to buy the stocks to make a buck.

But if you think these stocks are one-way bets, think again. My problem isn’t that too many people hate them, but too few. Or, more particularly, too few in the one place it really matters for stocks: Wall Street.

In the case of Anheuser-Busch, FactSet data show that 18 analysts still rate the stock buy or overweight, and just 3 rate it a sell.

In late March, before all this stuff about trans influencer Dylan Mulvaney, Kid Rock, and collapsing sales of its beer brand Bud Light, those numbers were 19 and 3.

As for Target, the numbers are 19 positive ratings and absolutely zero sell ratings. In late March, before the company came under fire over its “tuck friendly” swimsuits and Pride-themed children’s clothes, the figures were 20 and zero.

There has, in other words, been pretty much no change, at least in the official ratings that the analysts admit to publicly.

Actually, right now these companies have better — public — ratings from Wall Street analysts than the average U.S. company. FactSet shows that, across the S&P 500, 55% of analysts’ ratings are bullish and 6% bearish.

(That ratio, by the way, tells you a lot about Wall Street.)

These are the numbers that make me fear it is probably too early to buy the selloff. Or, more accurately, even if it isn’t too early, it isn’t a slam dunk. Real capitulation comes when no analyst dares recommend the stock.

It’s a caution to bear in mind, even though the storm of controversy has pummeled both stocks — and may yet pummel others.

Target’s stock, for example, has dropped in two weeks from $161 to $130, its lowest level in nearly three years. That’s wiped about $12 billion off the company’s stock-market value.

The problem with Target is that it faces multiple challenges, not just the recently stirred-up controversy. All traditional retail is struggling in an era of rising costs, a consumer squeeze and competition from Amazon
AMZN,
+1.05%

and others.

Bud Light’s parent, brewing goliath Anheuser-Busch InBev, looks more interesting. Booze is a great business to be in. Margins are high, customers pay for brands and the product lasts only as long as it takes to drink. You can’t download it online, sales are regulated, and there is not, as yet, a way for AI to replace it.

AB InBev is the biggest brewer in the world, a global giant. But the stock has fallen by nearly a fifth since Kid Rock posted his YouTube video in early April, from $67 to $55. That’s equal to a stunning $24 billion in stock-market value.

Is that economically justified? Is Kid Rock the $24 billion man?

At current prices, the stock is trading at 16 times forecast earnings for the next 12 months. That’s not especially cheap. But, interestingly, it is just 1.7 times forecast per-share revenue. According to FactSet, over the last five years it has averaged three times sales.

Most important: The stock is mostly, and increasingly, a bet on beer sales in emerging markets, not just the U.S. Even a sustained U.S. disaster for Bud Light would not be terminal. Last year, according to the most recent annual report, the company got two-thirds of its operating profits, three-quarters of its revenue and four-fifths of its sales volumes from outside North America. And that share is rising steadily. The company already earns more revenue in Mexican pesos, Brazilian reals and Chinese yuan than in dollars. And the foreign share of sales and profits is rising sharply.

Anyway, I strongly suspect this Bud Light storm will pass. We have seen this stuff before. (I remember people telling me they would never shop at Target again after a data breach in 2013.) There’s one redeeming feature of today’s culture of online hysteria: that a culture with the brain power of a goldfish also has the memory of a goldfish. Cue the quote from Santayana.

Outright hostility to LGBTQ+ people is a very fringe phenomenon. According to the American Values Surveys, the share of Americans who strongly oppose laws that would “protect gay, lesbian, bisexual, and transgender people against discrimination in jobs, public accommodations, and housing” is 9%.

This number in 2015: 9%.

The number was as low as 4% in 2021, too — before the trans-rights campaign became so high-profile. So maybe some freshly former Bud Light drinkers are just fed up with activists and social-justice warriors, rather than with people’s sexual orientations or identities. 

Either way, turning this around shouldn’t be too hard. 

But I’d prefer it if the analysts hated the stock as much as Kid Rock does.



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