Brazil: Ambev boosted to Buy from Neutral on expectations of strong recovery in margins
Ambev S.A. jumped 2.3% as BofA upgraded shares citing Brazil beer sales, MSN reported on July 10.
The firm boosted the beverage maker to Buy from Neutral with a price objective of 17.50 reais ($3.50) from 16.40 reais ($3.20) on expectations margins will recovery strongly and valuation is discounted.
"We are constructive on margin performance in the next 18 months and estimate that 2024 EBITDA margin will be the highest since 2019," BofA Global Research analysts led by Isabela Simonato wrote in a note. "This should be driven by lower commodity costs, stronger BRL, and consistent price/mix."
Shares of the Brazilian brewer are up more than 20% year-to-date as it has ducked the controversy facing parent company Anheuser-Busch InBev SA/NV after it featured a transgender influencer in a promotion for Bud Light. Conservatives called for a boycott, which has led to plummeting sales.
BofA estimates Ambev’s consolidated EBITDA will increase 19% year-over-year to R$30.4B in 2024, with the Brazil Beer division being a key growth driver as it hikes prices above inflation.
On the downside, Brazil is eliminating tax benefits, which could reduce EPS. The bank also cited competition from Heineken as the preferred brand among Brazilians.
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