Which beer stock is a better investment?
Ambev SA (ABEV) in São Paulo, Brazil and Molson Coors Beverage Company (FAUCET) in Denver, Colorado, are two popular brewers. ABEV is a Brazilian brewing company that produces, distributes and sells beer, draft beer, carbonated non-alcoholic beverages (CSD), other non-alcoholic beverages, malt, and food products in the Americas. It has exclusive bottler and distributor rights for PepsiCo, Inc. (DYNAMISM) CSD products in Brazil. Molson Coors Beverage Company (FAUCET) manufactures, markets and sells beer and other malt beverages around the world.
TO meet current demand, most brewing companies moved their operations online in the early months of the COVID-19 pandemic. Since the resurgence of COVID-19 cases has recently reduced frequentation in bars and restaurants, the introduction of new flavors and online operations should help brewing businesses stay afloat. Additionally, as a staple consumer product, the industry may attract the attention of investors in these uncertain times. The global beer market is expected to grow at a 2.6% CAGR between 2020 and 2027. Therefore, we believe that ABEV and TAP should benefit.
While TAP has posted 7.6% returns since the start of the year, ABEV’s stock price has jumped 13.5%. In terms of last year’s performance, ABEV is a clear winner with gains of 36.3% versus 28.6% for TAP. But, which of these titles is the best choice now? Let’s find out.
Recent financial results
ABEV’s net sales for its fiscal second quarter, ended June 30, 2021, increased 35.3% year-over-year to $ 15.71 billion ($ 2.92 billion). The company’s gross profit was reported at 7.75 billion reais ($ 1.44 billion), representing a 33.2% year-over-year improvement. Its operating profit amounted to 3.90 billion reais ($ 726.55 million), up 103.5% from the same period of the previous year. ABEV’s normalized profit was $ 4.8 billion for the quarter, representing a 115.8% year-over-year improvement. Its normalized EPS rose 125% year-on-year to $ 0.18. As of June 30, 2021, the company had R $ 13.27 billion in cash and cash equivalents.
For its fiscal second quarter, ended June 30, 2021, TAP’s non-GAAP net sales increased 17.5% year-on-year to $ 2.94 billion. The company’s gross profit was reported at $ 1.27 billion, representing a 21.5% year-over-year improvement. Its non-GAAP operating income was $ 490.80 million, up 2.6% from the prior year period. TAP’s non-GAAP net income was $ 343.80 million for the quarter, representing a 1.9% year-over-year improvement. Its non-GAAP EPS increased 1.3% year-over-year to $ 1.58. The company had $ 1.31 billion in cash and cash equivalents as of June 30, 2021.
Past and expected financial performance
ABEV’s total assets and leveraged free cash flow have grown at CAGRs of 11% and 9.2%, respectively, over the past three years. Its sales have grown at a CAGR of 10.3% over the past three years.
Analysts expect ABEV’s revenue to grow 18.2% year-on-year in the current year and 6.7% next year. Its EPS is expected to decline 1.8% in the current year and increase 7.3% next year.
In comparison, TAP’s total assets and leveraged free cash flow have declined at CAGRs of 2.3% and 17.8%, respectively, over the past three years. Its sales have declined at a CAGR of 3.1% over the past three years.
Analysts expect TAP’s revenue to grow 6.6% year-on-year in the current year and 2.6% next year. Its EPS is expected to grow 2.4% year-over-year in the current year and 7.4% next year.
ABEV’s last 12 months turnover is almost 1.4 times that of TAP. ABEV is also more profitable, with a rate of 52.6% Gross margin against 41.5% for TAP.
In addition, ABEV’s respective net profit margin and ROE of 21.9% and 19.2% compare favorably with the respective negative values of TAP.
In terms of non-GAAP futures PEG, ABEV is currently trading at 3.22x, which is 22.9% higher than TAP’s 2.62x.
In terms of EV / forward sales, ABEV’s 3.95x is 127% higher than TAP’s 1.74x.
While TAP has an overall rating of C, which translates to Neutral in our POWR odds system, ABEV has an overall rating of B, which is equivalent to Buy. POWR scores are calculated taking into account 118 different factors, each weighted to an optimal degree.
In terms of Quality, ABEV was rated A, in line with its profitability ratios higher than those of the industry. ABEV’s 12.6% 12-month rolling return on total capital is 56.5% above the industry average of 8%. However, TAP has a C rating for quality, which is consistent with its relatively lower profit margins. The company has a 4.6% 12-month rolling return on total capital, 42.4% below the industry average of 8%. Out of the 37 B-rated stocks Beverages industry, TAP is ranked No.26, while ABEV is ranked No.11.
Beyond what we have stated above, our POWR rating system has also rated ABEV and TAP for Growth, Sentiment, Value and Stability. Get all TAP Assessments here. Also, Click here to see additional POWR ratings for ABEV.
Despite the resurgence of COVID-19 cases, beer sales are expected to increase in the coming months. This should allow TAP and ABEV to take advantage of favorable industry winds. However, its better financial results and higher profitability make ABEV a better buy here.
Our research shows that the odds of success increase when betting on stocks with an overall buy or strong buy POWR rating. Click here to access the top rated stocks in the beverage industry.
ABEV stock rose $ 0.01 (+ 0.31%) outside of trading hours on Monday. Year-to-date, ABEV has gained 4.43%, compared to a 20.41% increase in the benchmark S&P 500 over the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a particular interest in finding market inefficiencies. She is passionate about educating investors so that they can be successful on the stock market. Following…