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Ambev vs. Molson Coors: Which Beer Stock is a Better Investment?

Although rising COVID-19 cases are reducing the patronage of bars and restaurants, online operations should enable brewing companies to capitalize on growing demand for beer. Furthermore, because consumer staples are regarded as safe investment bets in times of uncertainty owing to their stable demand—and yes, beer is a staple—both ABEV and TAP should benefit from rising investor interest. But which of these stocks is a better buy now? Let’s find out.

Ambev S.A. (ABEV) in São Paulo, Brazil, and Molson Coors Beverage Company (TAP) in Denver, Colo., are two popular brewers. ABEV is a Brazilian brewing company that produces, distributes, and sells beer, draft beer, carbonated soft drinks (CSD), other non-alcoholic beverages, malt, and food products in the Americas. It has exclusive bottler and distributor rights for PepsiCo, Inc.’s (PEP) CSD products in Brazil. Molson Coors Beverage Company (TAP) manufactures, markets, and sells beer and other malt beverage products worldwide.

To meet current demand, most brewing companies shifted their operations online during the early months of the COVID-19 pandemic. Because the resurgence of COVID-19 cases has lately been reducing patronage of bars and restaurants, the introduction of new flavors and online operations should help beer companies stay afloat. In addition, as a consumer staple, the industry might attract investors’ attention amid these uncertain times. The global beer market is expected to grow at a 2.6% CAGR between 2020 - 2027. Therefore, we think both ABEV and TAP should benefit.

While TAP has gained 7.6% returns year to date, ABEV share price has surged 13.5%. In terms of the past year’s performance, ABEV is a clear winner with 36.3% gains versus TAP’s 28.6%. But, which of these stocks is a better pick now? Let’s find out.

Recent Financial Results

ABEV’s net revenue 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 has been reported at R$7.75 billion ($1.44 billion), representing a 33.2% improvement year-over-year. Its income from operations came in at R$3.90 billion ($726.55 million), up 103.5% from the prior-year period. ABEV’s normalized profit was  $4.80 billion for the quarter, representing a 115.8% year-over-year improvement. Its normalized EPS increased 125% year-over-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-over-year to $2.94 billion. The company’s gross profit has been reported at $1.27 billion, representing a 21.5% improvement year-over-year. Its non-GAAP operating income came in at $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 levered free cash flow have grown at CAGRs of 11% and 9.2%, respectively, over the past three years. Its revenue grew at a 10.3% CAGR over the past three years.

Analysts expect ABEV’s revenue to increase 18.2% year-over-year in the current year and 6.7% next year. Its EPS is expected to decrease 1.8% in the current year and increase 7.3% next year.

In comparison, TAP’s total assets and levered free cash flow declined at CAGRs of 2.3% and 17.8%, respectively, over the past three years. Its revenue declined at a 3.1% CAGR  over the past three years.

Analysts expect TAP’s revenue to increase 6.6% year-over-year in the current year and 2.6% next year. Its EPS is expected to increase 2.4% year-over-year in the current year and 7.4% next year.

Profitability

ABEV’s trailing-12-month revenue is almost 1.4 times  TAP’s. ABEV is also more profitable, with a 52.6% gross profit margin versus TAP’s 41.5%.

Also, ABEV’s  21.9% and 19.2% respective net income margin and ROE compare favorably with TAP’s respective negative values.

Valuation

In terms of non-GAAP forward PEG, ABEV is currently trading at 3.22x, which is 22.9% higher than TAP’s 2.62x.

In terms of forward EV/Sales, ABEV’s 3.95x is 127% higher than TAP’s 1.74x.

POWR Ratings

While TAP has an overall C grade, which translates to Neutral in our proprietary POWR Ratings system, ABEV has an overall B grade, equating to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.

In terms of Quality, ABEV has been graded an A, in sync with its higher-than-industry profitability ratios. ABEV’s 12.6% trailing-12-month return on total capital is 56.5% higher than the 8% industry average. However, TAP has a C grade for Quality, which is consistent with its relatively lower profit margins. The company has a 4.6% trailing-12-month return on total capital, which is 42.4% lower than the 8% industry average. Of the 37 stocks in the B-rated Beverages industry, TAP is ranked #26, while ABEV is ranked #11.

Beyond what we’ve stated above, our POWR Ratings system has also rated ABEV and TAP for Growth, Sentiment, Value, and Stability. Get all TAP ratings here. Also, click here to see the additional POWR Ratings for ABEV.

The Winner

Despite the resurgence of COVID-19 cases, beer sales are expected to grow in the coming months. This should allow TAP and ABEV to capitalize on industry tailwinds. However, its better financials and higher profitability we think make ABEV a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Beverages industry.


ABEV shares rose $0.01 (+0.31%) in after-hours trading Monday. Year-to-date, ABEV has gained 4.43%, versus a 20.41% rise in the benchmark S&P 500 index during the same period.



About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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