Goldman Sachs cuts its Anheuser rating

Modern Brewery Age,  Jan 16, 2006  

Tags: Goldman Sachs & Co.

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Goldman Sachs analyst Judy Hong, in a note to investors, wrote that the overall beverage segment is "caught in a crosswind" and said beverage stocks could lag in a recovering economy.

Hong said that U.S. GDP growth in 2006 will be driven by industry, and asserted that consumer goods stocks often underperform in this sort of economic climate.

She lowered Anheuser-Busch to "underperform" from "in-line." She wrote that Anheuser-Busch is "Our least favorite stock as valuation looks full relative to the slower-growth paradigm we see for its US beer division."

She noted that increased competition from vintners and distillers, together with its beer rivals, "is likely to limit US beer division profit growth to 3% to 4%, well short of [the company's] 6%-plus objective."

Somewhat surprisingly, given most analysts' anxiety about the Molson/Coors merger, Hong rates Molson Coors as "outperform." She described the company as, "more of a value/turnaround play since the business has very limited organic growth potential ... The story is compelling because if the company can maintain relatively stable results in its core Canadian and U.S. businesses and get back to breakeven in Brazil, we believe that synergies...could boost free-cash generation to $7 per share by 2007."

Hong also had a favorable take on the future on more diversified beverage vendors, like Constellation. Of that company, she wrote [It] "has the best organic growth profile in the beverage space, with leading positions in the premium wine segment in several major markets ... and the #1 position in the U.S. imported beer industry in the western half of the United States."

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