Battered Bud Light parent is a ‘nerve-racking’ buying opportunity, says analyst

RBC analysts James Edwardes and Emma Letheren said they now expect a 37% drop in earnings before interest, taxes, depreciation, and amortization (EBITDA) — a measure of profitability — for the Bud Light brand and 22% drop for AB InBev’s
ABI,
+0.58%

BUD,
+0.85%
North American business.

They explained that the brewer’s North American business is now trading on 5.9 times their 2024 EBITDA forecast, which is a 23% reduction from the start of April, before the controversy began.

“This is excessive given our belief that Bud Light’s travails will not impinge on AB InBev outside the U.S.. Consequently, the share price decline presents a (nerve-racking) buying opportunity,” the analysts said in a Wednesday note to clients.

Last month, JPMorgan warned of an even bigger U.S. EBITDA drop of 26%, as they predicted the likelihood of “a subset of American consumers who will not drink a Bud Light for the foreseeable future.” Analysts at HSBC downgraded AB InBev to hold last month over the controversy.

U.S.-listed shares of AB InBev have dropped 16% in the current quarter and 7% year to date, closing on Tuesday at $55.62. Belgian-listed shares are down 15% for the quarter, and 8% year to date, currently changing hands at around €51. Over 12 months, those shares are up 7% and 4%, respectively.

RBC offered up this chart that compares AB InBev’s share price to Heineken
HEIA,
-0.28%
and Carlsberg
CARL.B,
+0.05%
since the start of the second quarter.

RBC’s price target has dropped 5% to €69, but analyst reiterated their outperform rating, on the view that shares are “compellingly undervalued.”

The backlash has now seen Modelo Especial overtake Bud Light as the bestselling beer in the U.S. The stock saw small relief this week after country singer bar owner Garth Brooks implied he would not ban Bud Light at his bar.