Sao Paulo-based Ambev S.A. (ABEV) surpassed its consensus earnings estimate by 15.7% in the third quarter. Although its revenue grew strongly in the last quarter, it missed analyst estimates marginally. Belonging to the brewing sector, ABEV produces, distributes, and sells beer, carbonated soft drinks (CSDs), and other non-alcoholic and non-carbonated (NANC) beverages across the Americas.

In the last quarter, ABEV’s total volume rose 1.3% year-over-year, driven by Brazil NAB volumes rising 10.2%, while Latin America South and Canada rose 4.5% and 3.4%, respectively. The growth in revenue in the third quarter was driven by higher NR/hl performance. In the last quarter, NR/hl came in at 17.4%, compared to 14% for the first six months of fiscal 2022.

ABEV CEO Jean Jereissati said, “Our Brazil businesses continue to build momentum, delivering double-digit revenue and EBITDA growth, which more than offset continued headwinds in some of our international operations.”

B2B digital platforms generated 57% of ABEV’s revenue in the third quarter. Moreover, its B2B platform, BEES, reached a monthly active user base of 3.1 million at the end of the third quarter.

BEES’ gross merchandise value rose 40% year-over-year to $7.70 billion. ABEV’s direct-to-consumer (DTC) ecosystem captured over $385 million in revenues and approximately 17 million in e-commerce orders.

Due to strong business momentum, the company expects better net revenue and EBITDA growth in the second half. For fiscal 2022, ABEV raised its EBITDA growth from 4-8% to 6-8%. Also, it expects revenue growth to be higher than EBITDA growth because of the football world cup in Qatar.

ABEV’s stock has gained 1.2% over the past six months. However, the stock has declined 4.8% in price over the past year to close the last trading session at $2.59.

Here’s what could influence ABEV’s performance in the upcoming months:

Robust Financials

ABEV’s net revenue increased 11.3% year-over-year to R$20.59 billion ($3.81 billion) for the third quarter ended September 30, 2022. Its gross profit increased 7.6% year-over-year to R$9.94 billion ($1.84 billion). 

In addition, its normalized EBITDA increased 2.4% year-over-year to R$5.60 billion ($1.04 billion). Also, its normalized EPS came in at R$0.20.

Mixed Analyst Estimates

ABEV’s EPS for fiscal 2022 and 2023 is expected to decline 7.2% and 8.1% year-over-year to $0.15 and $0.14, respectively. On the other hand, its revenue for fiscal 2022 and 2023 is expected to increase 4.4% and 7.4% year-over-year to $14.86 billion and $15.96 billion, respectively. 

It surpassed the Street EPS estimates in each of the trailing four quarters.

Mixed Valuation

In terms of forward non-GAAP P/E, ABEV’s 17.09x is 8.9% lower than the 18.75x industry average. Likewise, its 11.48x forward EV/EBIT is 26.4% lower than the 15.60x industry average.

However, its 2.57x forward EV/S is 52% higher than the 1.69x industry average. Also, its 2.75x forward P/S is 142.9% higher than the 1.13x industry average.

High Profitability

ABEV’s 16.57% trailing-12-month net income margin is 298.7% higher than the 4.16% industry average. Likewise, its 22.12% trailing-12-month EBIT margin is 173.4% higher than the 8.09% industry average. Furthermore, the stock’s 9.71% trailing-12-month levered FCF margin is 278.3% higher than the 2.57% industry average.

POWR Ratings Show Promise

ABEV has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ABEV has a C grade for Value, consistent with its mixed valuation.

It has an A grade for Quality, in sync with its high profitability. The mixed analyst estimates justify its C grade for Sentiment.

ABEV is ranked #12 out of 34 stocks in the A-rated Beverages industry. Click here to access ABEV’s Growth, Momentum, and Stability ratings.

Bottom Line

ABEV reported solid earnings and revenue growth in the third quarter, driven by strong business momentum. The company remains confident of achieving strong EBITDA and revenue growth in the second half of fiscal 2022. Moreover, given the inelastic demand for its products, the company is expected to perform well amid the uncertain macroeconomic environment.

Given its robust financials and high profitability, it could be wise to buy the stock now.

How Does Ambev S.A. (ABEV) Stack up Against Its Peers?

ABEV has an overall POWR Rating of B, equating to a Buy rating. Check out these other stocks within the Beverages industry with an A (Strong Buy) or B (Buy) rating: Coca-Cola Consolidated, Inc. (COKE), Coca-Cola FEMSA, S.A.B. de C.V. (KOF), and Primo Water Corporation (PRMW).

ABEV shares were trading at $2.61 per share on Wednesday morning, up $0.02 (+0.77%). Year-to-date, ABEV has declined -4.04%, versus a 0.15% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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