Investors spending too much time chasing after hot technology stocks have perhaps missed on a deal announced on Thursday that has the stocks of Anheuser-Busch Inbev (BUD) and Constellation Brands (STZ) rallying: AB agreed to sell Modelo's Piedras Negras brewery to Constellation, as well as, and grant it the right for Corona and other Modelo brands.
The deal is a win-win situation for both companies, especially for AB as it will clear the objections of the U.S. Department of Justice objections over its $20 billion takeover of Grupo Modelo. That's why I like AB better than Constellation Brands.
Company | Forward PE | Qtrly Revenue Growth (yoy) | Qtrly Earnings Growth (yoy) | Operating Profit Margins | Return on Assets |
Anheuser-Busch InBev SA | 17.47 | 0.50% | 15.60% | 31.82% | -- |
Company | Forward PE | Qtrly Revenue Growth (yoy) | Qtrly Earnings Growth (yoy) | Operating Profit Margins | Return on Assets |
Constellation Brands | 15.62 | 9.40% | 4.50% | 20.34% | 4.46% |
AB InBev enjoys three advantages: economies of scale, scope, and branding. In 2011, the company had close to $40 billion in sales (47.9 percent of the beer market). AB InBev markets 200 brands, including MillerCoors (50 percent market share). Groupo Modelo's acquisition will certainly expand both the scale and scope of AB operations; and further strengthen its market position in the beer market. A larger market share, in turn, will allow AB to raise its pricing power, boosting further its already high operating margin.
Market Share of Top Firms in The Beer Market by Volume (2010)
Company | Market share |
AB InBev | 47.9 (%) |
Miller Coors | 28.9 |
Crown Imports | 5.3 |
Heineken USA | 4.0 |
Pabst | 2.7 |
Diageo | 1.3 |
Other | 2.1 |
Source: Beer Insights, 2011
The bottom line: The AB Constellation deal is a win-win deal for both companies, but it will be more rewarding to AB stockholders
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
