US: Legg Mason cuts Anheuser rating
Equity analyst Legg Mason has downgraded its rating of the US brewer Anheuser-Busch from "hold" to "sell" after the company issued a statement saying it expected sales below previous estimates.
In a note, Legg Mason analyst Mark Swartzberg said: "We think the shares are most likely heading to the low US$40s, all else being equal. Negative earnings revisions and further multiple contraction are most likely, in our view, to drive anticipated performance. EBIT growth continues to decelerate and is likely to turn negative in 2005, a trend that takes time to reverse and argues for additional multiple contraction."
Swartzberg added that he saw domestic company shipments returning to slight growth in 2H, but the comparison-adjusted amount is for essentially flat company volumes through year-end and potentially longer.
Legg Mason said the company's volumes disappointed in 1Q primarily because the beer industry weakened - from up approximately 0.7% in 2004 to down approximately 2% in the first two months of 2005.
"Wine & spirits share-taking, we believe, remains a major factor," Swartzberg said.
He added that the unexpected contributor to share weakness is within the Budweiser family.
"Bud Light is growing solidly, but Budweiser may be declining at an increasing rate and Budweiser Select may be cannibalizing A-B products to a greater extent than expected."
Legg Mason is now expecting second half shipments to be up 0.5%-1.0%, but this is comparison-driven and equates to an essentially flat run-rate for volumes.
"All else being equal, we advise anticipating weakness into the low US$40s because we believe the market will have difficulty seeing long-term EPS growth above mid- single digits annually. The company's volume outlook, we expect, will be the main stumbling block," Swartzberg concluded.
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