By Claudio Freitas, CFA
We are maintaining our Buy recommendation on Companhia de Bebidas das Americas, or AmBev (ABV). The company posted good results for the first quarter of 2009 with excellent results in the key Brazilian market. InBev's acquisition of Anheuser-Busch was positive for the company as it creates huge synergies.
Despite the difficult economic environment throughout the world due to the global credit crunch, the company, which is focusing on low cost, daily use products, is not tied directly to the international economic cycle. Also, a more relaxed monetary policy in Brazil is very positive for the company.
In our opinion, ABV's valuation should be between 20.0x to 21x EPS estimate. Our target price is $67.50 according to our detailed DCF [discounted cash flow] model, representing a P/E between 17x and 17.5x our 2009 earnings estimates -- an acceptable premium over the industry mean, considering the above-average growth and profitability outlook for ABV.