As disposable incomes of consumers in emerging markets continues to expand, so will their waistlines. That’s good news for AmBev (ABV), South America’s largest beverage company.
The beer and soft drink maker continues to see strong growth from its home country of Brazil, an emerging market nearly 200 million people strong.
The company reported solid second quarter results and analysts have been revising their estimates higher recently, propelling it to a Zacks #1 Rank (Strong Buy) stock.
Second Quarter Results
Overall net sales increased 11.5% from the second quarter of 2009 as the company was able to implement price increases and still recognize volume gains. Volume growth was particularly strong in Brazil, which saw an increase of 12.6%.
The gross margin contracted a bit, however, from 67.8% to 65.9%. Selling, general, and administrative expenses were held in check though. SG&A accounted for 31.2% of total sales, down from 31.8% in the same quarter in 2009. Earnings per share increased 9% year-over-year.
Estimates
Estimates have risen significantly in the last few weeks, as seen in the Price & Consensus chart:
The Zacks Consensus Estimate for 2010 is $6.61, up from $6.41 just 30 days ago, and a 27% increase from 2009 earnings per share.
The 2011 estimate has also been trending up and currently sits at $7.46, representing a 13% annual gain.
Fundamentals
Shares recently traded at 21.3x forward earnings, a premium to the industry average of 16.3x. Its PEG ratio is a reasonable 1.7 however.
Return on equity is an impressive 28.8%. Its net profit margin is equally remarkable, at 25.7%. This is well-above the industry average of 5.9%.
The stock has a dividend yield of 2.0%. Its payout ratio of 24% is easily covered by the company’s strong and stable cash flow.
AmBev has a market cap of $87.2 billion. It is majority-owned by Anheuser-Busch InBev.
The Chart
The stock has really taken off in the last few weeks, gaining over 27% since September 1. Shares are trading near their 52-week high.
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