Buy BUD Stock. The Bud Light Transgender Controversy Is a Distraction for a Solid Business.

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The mess involving Bud Light has dampened a revival at

Anheuser-Busch InBev

and soured Wall Street on the global beer giant’s stock.

Investors, however, might want to consider the depressed shares (ticker: BUD), which have fallen about 11%, to $58.80, since the company reported good first-quarter results in early May. Now fetching about 18 times projected 2023 earnings of $3.19 a share, BUD is more than 50% below its 2016 peak of $133 and trades at a wider-than-usual discount to leading consumer stocks such as

Coca-Cola

(KO) and

PepsiCo

(PEP), which command about 25 times earnings.

The drop was spurred by a Bud Light promotion featuring transgender influencer Dylan Mulvaney, leading many conservatives to boycott the brand.

While Bud Light’s troubles are hurting its U.S. brands, BUD gets just 30% of its profits from the U.S. and Canada. The company has strong positions elsewhere around the globe, anchored by Central and South America, where it generates about half of its profits. The beer business shows signs of perking up, and BUD’s improved balance sheet has let the company boost its dividend, now yielding 1.4%.

Says Evercore ISI analyst Robert Ottenstein: “The issues in the U.S. present a serious challenge today, but seem to be stabilizing. If [negative] volume trends start to moderate soon—and we think there is a good chance [they will]—this will likely prove an attractive entry point.” He rates the stock Outperform with an $80 price target.

Investors, however, might need to be patient. Owing to the Bud Light brouhaha, Wall Street has cut its 2023 estimates by about a dime a share and sees little or no earnings growth this year. The villain: 20%-plus declines in Bud Light off-premise sales—those at retail stores—since the controversy erupted more than a month ago, according to Beer Business Daily. And the drop at bars and restaurants, some investors suspect, may be worse.

Company / Ticker	Recent Price	Market Value (bil)	52-Week Change	2023E EPS	2023E P/E	2024E P/E	Dividend Yield	Net Debt (bil)
Anheuser-Busch InBev / BUD	$58.80	$118.7	6.5%	$3.19	18.4	15.9	1.4%	$69.7
Molson Coors Beverage / TAP	61.88	13.4	18.0	4.30	14.4	14.0	2.7	6.4
Coca-Cola / KO	62.80	271.6	2.6	2.61	24.1	22.4	2.9	28.1
PepsiCo / PEP	191.56	263.9	17.1	7.30	26.2	24.2	2.6	36.6

E=estimate

Sources: Bloomberg; company reports

Moreover, the controversy appears to be hurting other BUD brands, including Budweiser and even Michelob Ultra—one of the few bright spots domestically for the company, which has suffered steady overall U.S. volume declines for a decade.

However, BUD’s global beer volume rose 1.8% in 2022 and 0.9% in the first quarter, with revenue up 12.4% on higher pricing. Citigroup analyst Simon Hales, who rates BUD a Buy with a $73.50 target, expects a 13% drop in Bud Light volume in 2023’s final three quarters, but argues that its woes already are more than discounted in the stock price.

There have been encouraging developments. BUD has shifted from an acquisition-heavy growth strategy to one focused on driving volume and revenue growth.

The architect of the old approach, Carlos Brito, stepped down as CEO in 2021, replaced by another Brazilian, Michel Doukeris. Now, the company is emphasizing its premium-price beers, led by Corona, Stella Artois, and Budweiser, which are marketed worldwide. In the first quarter, earnings rose 9% year over year to 65 cents a share. Corona’s revenue rose 11.9%; Stella Artois’, 13.3%; and Budweiser’s, 17.8% outside their home markets of Mexico, Belgium, and the U.S., respectively.

Net debt fell to a still hefty $69.7 billion at year-end 2022, versus $76.2 billion in 2021, helping to raise BUD’s credit ratings from Moody’s and S&P to single-A from BBB and the equivalent. For years, especially after it bought SABMiller for $100 billion in 2016, a knock on BUD was that it was taking on too much debt for acquisitions.

Ottenstein and some other analysts think the Bud Light controversy will fade by next year. That’s reflected in the FactSet consensus call for a 15% increase in 2024 earnings to $3.69 a share, which puts the stock at a reasonable 16 times forward earnings. Doukeris and other executives were upbeat on the company’s first-quarter earnings conference call in early May, saying that they expect 2023 earnings before interest, taxes, depreciation and amortization, or Ebitda, to rise 4% to 8%, in line with its medium-term guidance. They also expect revenue this year to rise at a faster rate than Ebitda.

One problem: The brewer is incorporated in Belgium, so isn’t eligible to be in the

S&P 500 index.
That gives U.S. institutions less reason to own it.

Although the Mulvaney marketing strategy backfired, it was addressing a real issue: the long-term decline of Bud Light, BUD’s top domestic brand, accounting for 30% of U.S. sales. Volumes were down by a third since 2010, even before the recent debacle.

BUD plans to triple spending on Bud Light marketing this summer. But its handling of the Mulvaney situation has raised questions about its marketing and crisis-management abilities. The company’s initial statement said, “We never intended to be part of a discussion that divides people. We are in the business of bringing people together over a beer.” Nick Puleo, founder and CEO of Comsint, a strategic consulting firm, wrote in Barron’s that such “wishy-washy verbiage isn’t likely to unite anyone.”

Two U.S. marketing executives involved in the initiative have been put on leave, and HSBC analyst Carlos Laboy argues that further leadership changes may be needed. But whatever happens, the stock is cheap enough to warrant a look from bargain hunters.

Write to Andrew Bary at andrew.bary@barrons.com