Close

Beyond Beer, AB-Inbev (BUD) Could Look to Energy Drink Deal (MNST) - Evercore ISI

October 23, 2017 10:18 AM EDT
Get Alerts MNST Hot Sheet
Price: $60.79 --0%

Rating Summary:
    21 Buy, 10 Hold, 1 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 9 | Down: 7 | New: 39
Join SI Premium – FREE

Despite speculation that AB-Inbev's (NYSE: BUD) next large deal could be outside the beer space (PEP, KO), Evercore ISI analyst Robert Ottenstein continues to believe that the company's next move is more likely to align with its goal of expanding its beer business. The analyst discussed three potential M&A scenarios that would fall in-line with this: 1. Acquire Constellation Brand (NYSE: STZ) beer business, 2. buy the remainder of Castel, and 3. buy Guinness from Diageo. However, beyond beer, the analyst discussed the possibility of AB-Inbev going bigger into the NARTD space, possibly doing another transaction in energy drinks. While Monster Beverage (NASDAQ: MNST) wasn't explicitly mentioned as a target, the analyst said AB-Inbev needs volume and revenue and the company's systems have experience distributing Monster.

Ottenstein said with no end in sight for 1-2% volume declines for its beer portfolio, they believe that AB-Inbev's U.S. distribution system badly needs more volume and revenue. Given this it would not surprise them if the firm's venture into energy with Hiball is a prelude to something much bigger.

While valuations are high and targets are few, Ottenstein highlighted that AB-Inbev demonstrated with SABMiller its willingness to pay up for growth. He also notes the company recently bought a stake in Golden West Food Group, owner of the KOE Kombucha brand and Bowery Cold Brew canned coffee brand.

Ottenstein thinks energy drinks is a particularly attractive category, given the growth rate, margins and the AB-Inbev system’s experience distributing Monster.

In addition, there’s significant overlap in distribution channels, as ~70% of energy drinks are sold in c-stores, a particular strength of the AB-Inbev system.

Energy drinks could also help in geographies like California, where the company has lost significant market share, and with the Hispanic-American population.



Serious News for Serious Traders! Try StreetInsider.com Premium Free!

You May Also Be Interested In





Related Categories

Analyst Comments, Rumors