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No Foam In This Beer

By Glenn Curtis

Tickers in this Article: BUD

If volatility in the stock market has got you down, there's no point in worrying, just relax kick back and crack open a cold one.

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And what better company to provide than beer than Anheuser-Busch (NYSE:BUD). Despite the tumultuousness in equities in recent months, the world-renowned beer maker continues to make money and its stock has been a pillar of stability.

Mmmm Beer
Anheuser-Busch is coming off a solid third quarter where it earned 95 cents a share. This is nearly a 16% improvement over the 82 cents per share it earned in EPS during the comparable period last year. The performance was also roughly 2 cents north of what analysts had forecast. In addition, the company posted a roughly 7.9% gain on its top line, growing sales to $4.62 billion from $4.28 billion last year.

These numbers could get even better. Management has said that it plans to increase advertising spending next year, taking advantage of what appears to be a recent increase in consumer demand for beer. According to the company's CFO, W. Randolph Baker last year beer industry shipment volume increased 2.1% - which is the best annual performance seen since 1990. Its ad effort is expected to focus on pushing its core brands, Bud and Bud Light.

Another reason I am optimistic is that the company is planning on hiking its beer prices in the coming year to compensate for rising grain and barely prices. This should limit the pinch that many thought that it would feel when commodity prices began to rise earlier this year. Baker noted in a recent press release that consumers were actually pretty accepting of price increases.

The next reason I'm optimistic is that Anheuser-Busch is doing something that always piques my interest - buying back its stock. During the first nine months of the year, the company repurchased over 38 million shares. Stock buybacks should often be viewed as a signal to investors that the board thinks that there is sizable upside potential to investing in the stock?

Mmmm Vodka?
At present the company is testing, believe it or not, a vodka called Purus, which is distilled in Italy. Now will Purus take off, and will Anheuser-Busch become known for its vodka? At $35 a bottle, it's a bit pricey, but with cocktails experiencing strong demand in recent years and an growing interest in upper end vodkas (even Donald Trump has his own brand) anything is possible.

For the record, Wall Street figures that the company will earn $2.82 per share this year and $3.08 per share next year. That implies an expected growth rate of approximately 9.2%, which is not too shabby. The stock also pays a dividend of 2.5% currently.

The Hangover
Anheuser-Busch isn't the only beer on the maker, and there are plenty of other vodka makers out there as well. Competition will most likely always be a factor. In addition, at about 18.2-times the current year earnings estimate the stock is not dirt cheap in my opinion. These are things that should be considered. (For added insight on the price-earnings multiple, read out P/E Ratio Tutorial.)

Bottom Line
Anheuser-Busch remains a great hedge against this volatile market. After all, it continues to turn out solid results, it plans to ramp up its advertising and prices going forward, and it's testing a new vodka. In short, I think the shares deserve a closer look.

For more on the stability of sin stocks, check out A Prelude To Sinful Investing.

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By Glenn Curtis

Glenn Curtis started his career in the 1990s as an equity analyst for a regional firm in New Jersey. There, he covered companies in the technology, entertainment, and gaming industries. Curtis has since worked as a financial writer at a series of both web and print publications, including TheStreet.com and Registered Rep Magazine. He has held his series 6,7,24, and 63 securities licenses.

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