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Summary

  • Demand continues to support revenue growth.
  • Strong fundamentals indicate attractive valuation.
  • Capital efficiency continues to improve.

Ambev SA (NYSE:ABEV), headquartered in Sao Paulo Brazil, produces and sells alcoholic and non-alcoholic beverages malt and food internationally. The company shares have performed well with regard to its industry and compared to the S&P 500 (Exhibit 1). Additionally, company shares have avoided the decline of the Brazilian market (Exhibit 2).

Exhibit 1

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Source: Stock Rover

Exhibit 2

(click to enlarge)

Source: Stock Rover

Fundamentals

Company fundamentals are strong on a historical basis. Operating margins remain stable (Exhibit 3). Free cash flows also continue to be strong (Exhibit 4). Additionally, the company continues to add value through operational efficiency leading to 13% annualized growth in sales which have contributed to annualized equity growth of 17% (Exhibit 5). Moreover, the dividend yield is higher than its peers as well as growing at an annual rate of 19% over the past 4 years and 47% over the past 10 years.

Exhibit 3

(click to enlarge)

Source: Stock Rover

Exhibit 4

(click to enlarge)

Source: Stock Rover

Exhibit 5

(click to enlarge)

Source: Stock Rover

Valuation

Industry analysts have an average target price of $7.98 (Exhibits 5). Also, price to earnings is attractive while price to sales and the earnings yield are improving (Exhibit 6).

Exhibit 5

Exhibit 6

(click to enlarge)

Source: Stock Rover

Using a discounted cash flow analysis supported by a comparable multiple valuation gives us an optimistic long-term equity value per share of $8.96 or 31% above current prices. Additionally in respect to its industry, ABEV is undervalued according to EV/EBITDA and P/E but overvalued according to Price to Sales.

Investment Opinion

ABEV has a long history of growth in emerging Latin America and seems as if it will continue to do so. Strong fundamentals, growing dividends and attractive valuations indicate a buying opportunity as shares take a break from recent momentum.

Disclaimer: Michael Lee is an investment strategist at Long Street Capital Management, LLC ("LSCM"). This article is prepared by Mr. Lee as an outside business activity. As such, LSCM does not review or approve materials presented herein. The opinions and any recommendations expressed in this article are those of the author and do not reflect the opinions or recommendations of LSCM.

None of the information or opinions expressed in this article constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either LSCM or Mr. Lee may hold or control long or short positions in the securities or instruments mentioned.

Source: Ambev Provides A Buying Opportunity