Anheuser - Busch

Anheuser-Busch (BUD:NYSE)

Based in St. Louis, Anheuser-Busch is the leading American brewer, holding a 48.8 percent share of U.S. beer sales. It is also one of the largest theme park operators in the United States, is a major manufacturer of aluminum cans and is America's top recycler of aluminum cans. The company has a market capitalization of US$38,366.57 million.

The company brews the world's largest-selling beers, Budweiser, Bud Light and Michelob.
Anheuser-Busch also owns a 50% share in Grupo Modelo, Mexico's leading brewer (maker of Corona beer), and a 27% share in Tsingtao, the No. 1 brewer in China. The China connection is important here, since it heralded the start of the company's troubles.

In mid 2004, Anheuser - Busch increased its stake in Harbin Brewery, the fourth-largest Chinese brewer. The purchase increased the company's market share in what promises to be the largest growth segment in beer over the next few years. However, the increased emphasis on international sales came at the beginning of a slowdown in the company's US sales volumes (down from 103 million barrels in 2004 to 101 million barrels in 2005). 

Wall Street slammed the company on the news, giving it 11 straight downgrades between September 2004 and July 2005. The result was that the stock price got hammered. But this gives us the opportunity to buy this market leader at a bargain price. It’s an opportunity that Douglas Warner capitalized on. Having been with the company since 1992, Warner knows that the company's current setbacks have more to do with the company’s size than any particular problem with its business. With nearly half the market share in US beer sales, the likelihood of growing its domestic business at double-digit rates is slim. The company is simply too big in the U.S. and needs to focus on international sales:  This is precisely what it’s doing now.

Anheuser-Busch brews Kirin beers at its Los Angeles brewery, allowing U.S. consumers to enjoy Kirin products with brewery-fresh flavor. Kirin beers are distributed in the United States through the Anheuser-Busch network of 600 independent wholesalers. A new deal just finalised with Kirin this month,transforms the relationship from contract brewing to licensed brewing, with Anheuser-Busch assuming profit and loss responsibility for the business in the United States. The two brewers have also had a relationship in the Japanese market since 1993, where Kirin brews, distributes and sells Budweiser, the flagship brand of Anheuser-Busch.

The company has just announced that it will start importing Harbin into the U.K, this is the chinese beer that it acquired two years ago after a bidding battle with its rival SABMILLER. It looks like the company's focus on International sales is just starting to come to fruition.
 
Warren Buffett’s Berkshire Hathaway began establishing a position in Anheuser -Busch back in 2004. By December 31st 2004 Buffett owned 10 million shares in the company. Within six months, it was 44 million shares, roughly 5.65% of shares outstanding.

Anheuser - Busch has maintained an exceptional level of profitability over the last seven years: Double-digit net margins are highly unusual for any sector, especially for a brewing company. However; it’s the company's averageannual return on equity, of 53%, that puts the company in a class of its own. The company is cheaper than its five-year averages for its P/E, P/B, and P/S multiples. It’s also cheaper than its competitors based on its P/E, P/B, P/S, and P/CF multiples.

Historically, the company has traded at 2.9 times sales. Currently, the company trades at 2.4 times sales.  In order for Anheuser - Busch to trade at its five-year average for its P/S multiple, the share price would have to be $58. Considering the industry average for P/S multiples is five, Anheuser - Busch shares could well soar.

Anheuser - Busch stands to make double-digit returns for the next 10 to 20 years.

Anheuser - Busch generates an incredible amount of cash for a brewing company. On top of this, its earnings per share growth is excellent.  Anheuser-Busch ranked No. 1 among beverage companies in FORTUNE Magazine's Most Admired U.S. and Global Companies lists in 2006.

At around $49 this blue chip looks a good buy.

Buy Anheuser - Busch (BUD:NYSE) up to $52. Enjoy a dividend of 2.36% whilst awaiting the profits to flow in.