Investors should buy shares of beer giant AB InBev — the largest beer company in the world — as a recent refinancing will lighten the burden from the company’s massive debt load, an analyst at RBC Capital Markets said Tuesday.
Analyst James Edwardes Jones named AB InBev a top pick, upgrading it from outperform. Jones also hiked his 2019 and 2020 earnings per share estimates.
AB InBev’s U.S.-listed shares slipped 0.2 percent in the premarket to $73.52.
“The dangers of AB InBev’s indebtedness have been overstated,” Jones wrote in a note to clients. “We think the level of debt is comfortably under control given AB InBev’s relatively non-cyclical nature, so it makes sense to think about valuation in terms of [price-to-earnings] (cheap vs. the sector) rather than [enterprise value]/EBITDA (relatively expensive).”
AB InBev’s debt ballooned to around $100 billion after it acquired SABMiller, a rival beer maker, back in 2016. AB InBev took out a record $75 billion loan to buy SABMiller.
On Jan. 10, AB InBev issued $15.5 billion in corporate bonds which will be used in part to pay off debt due between 2021 and 2024 as well as 2026.
“The recent refinancing was sensible,” Jones said. “It has replaced peaks of debt repayment with a smoother schedule which, at current exchange rates, should be doable from free cash flow, while significant appreciation in the US$ would be manageable.”
AB InBev lost 41 percent of its value last year amid concerns over the company’s ability to repay its gargantuan debt as well as declining beer sales. The Beer Purchasers’ Index, a metric used by the National Beer Wholesalers Association to track beer purchases, fell to 47 in December from 55 in the year-earlier period.
contributed to this report.
Originally published at CNBC