Morningstar is relaunching coverage of four of the largest global brewers: AB InBev ABI, Ambev ABEV3, Heineken HEIA, and Carlsberg CARL B. We are maintaining wide economic moat ratings for AB InBev and Ambev, upgrading Heineken to wide from narrow, and upgrading Carlsberg to narrow from none. Ambev is our preferred pick, as we believe the market does not fully reflect its region-leading growth potential, offering 33% upside from current levels.
We view AB InBev and Carlsberg’s current shares as fairly valued following our transfer of coverage, with fair value estimates of EUR 61 and DKK 890, respectively. For Ambev, our fair value estimate is 17.70 Brazilian real.
We see an attractive growth runway for both volume and premiumization; however, we believe there is market concern over volatility. We view Heineken’s shares as undervalued to our EUR 92 fair value estimate, offering 18% upside. We believe Heineken’s portfolio is well-poised to capitalize on premiumization trends.
Why Brewing Stocks Have Moats
The brewing industry has consolidated over the past two decades, led by AB InBev. Today, the top four brewers control 51% of the global beer market and enjoy several monopolylike positions across attractive markets. Given the localized nature of beer consumption, cost advantages in brewing are mostly built regionally. AB InBev, Ambev, Heineken, and Carlsberg have built up effective regional scale advantages, translating to procurement, manufacturing, and distribution efficiencies. We see intangible assets across the brewers, stemming from relationships across the supply chain and route-to-market prowess.
All firms are undertaking a premiumization strategy, which, we think, will be a long-term tailwind for returns. We expect value growth to offset beer volume declines in developed markets, with consumers trading up to foreign beer brands from domestic. Brewers have expanded their emerging-market footprint, where beer consumption per person is relatively lower. Here, we see a multiyear volume growth and premiumization runway.
AB InBev
We forecast AB InBev’s revenue will grow at a 4.4% compound annual growth rate over the next five years. In fiscal year 2025, we expect organic revenue growth of 3.5%, supported by stabilization in Latin America and growth in Africa. Beyond this, we expect AB InBev to reach a structural growth rate of 4.2%, which is in line with the 4%-5% growth we assume for most other multinational consumer product companies. Across all markets, we expect volume to grow in line with our industry estimates and positive price/mix to contribute to top-line growth driven by premiumization.
Heineken
For Heineken, our 4.9% five-year CAGR forecast is slightly higher than AB InBev’s, as we believe the firm’s premium-skewed portfolio will contribute to strong price/mix growth.
Carlsberg
We project an 8.3% five-year CAGR for Carlsberg, largely driven by inorganic growth from the Britvic acquisition.
AmBev
We forecast Ambev’s revenue to grow at a 5.9% CAGR over the next five years, thanks to favorable volume growth across Latin America.
What’s the Outlook for Brewing Stocks?
Gross and operating margins for AB InBev, Heineken, and Ambev has trended down over the past decade largely due to the pandemic and cost inflation. Looking ahead, we expect InBev and Ambev’s operating margins to remain relatively stable during our explicit forecast, with premiumization and operating efficiencies partially offset by increased advertising and promotion investments.
For Heineken, we project the operating margin to expand to 14.2% in 2029 from 11.5% in 2024, driven by scale benefits in South America, a positive mix effect from the Distell acquisition and premiumization across markets. For Carlsberg, we project operating margin to expand by 30 basis points, with the Britvic deal becoming margin accretive by 2027.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
