University of Connecticut – Student Managed Investment Fund
Stock Analysis Report
Anheuser-Busch Companies, Inc.
November 3, 2003
Prepared by Timothy Blais & Daniel McCarthy
Executive Summary
For
Anheuser-Busch Companies, Inc.
Anheuser-Busch Companies, Inc. is the holding company parent of AnheuserBusch, Inc. as well as a number of subsidiaries that conduct various other business
operations. These operations include domestic and international beer brewing, aluminum
container manufacturing, and theme park management. They are also the world’s largest
recycler of aluminum containers. For the last 5 years, revenue has risen 20.6%, from
$11.246 to $13.566 billion. Return on Capital has also steadily improved for the last 5
years from 16.5% to 21.9% (2002) with 2003 numbers estimated at 22.5%. AnheuserBusch also has the largest share of the market, rising from 48% to over 50% in the first
half of 2003. Some minimal risks include a moderate amount of long-term debt as well as
the company’s exposure to trends in the alcoholic beverage industry. As a group, we have
decided to purchase Anheuser-Busch Companies, Inc. because of its rising Return on
Invested Capital, steady growth rate, superior brand power, and growing product
diversification.
Student
Managed
Fund
Stock Research Report
By Timothy Blais & Daniel McCarthy
Business Summary
Anheuser-Busch Companies, Inc.
NYSE (BUD)
Market Cap: $40 billion
Industry: Alcoholic Beverages
Sector: Consumer/Non-Cyclical
Valueline: Timeliness 3
Safety 1
Technical 3
Anheuser-Busch has the strongest share of the alcoholic beverage market. Major
competitors include Adolph Coors and Miller Brewing Company. Significant brands
include Budweiser, Michelob, Busch, Natural Light, O’Doul’s, and others. Return on
Invested Capital has not fallen below 14% in the last 10 years.
Recent financial trends include reducing long-term debt, repurchasing of common
stock, and steadily increasing market share overseas. Through joint venture agreement
with Tsingtao Brewery, the largest brewer in China, Anheuser-Busch plans to increase
interest in Tsingtao from its current level of 4.5% to 27% by 2010. This is a beneficial
strategy because the Chinese beer market may be the largest market in the world. The
company is also expanding domestically with the launch of Michelob Ultra, a lowcarbohydrate beer. This new product appeals to the growing health consciousness of the
American public. In closing, Anheuser-Busch has been a historically stable company
with a Valueline rating of A++ and will continue its stability and growth into the distant
future.
Ratio Analysis
Currently, dividend yields are lower than the S&P average, yet still greater than those of
its greatest competitor, Adoph Coors, Inc. However, over the last 5 years, BUD has led
the industry in dividend yields.
Dividends
RKY
BUD
Industry
Sector
S&P 500
Dividend Yield
1.46
1.79
1.77
2.43
2.05
Dividend Yield - 5 Year Avg.
1.20
1.50
1.40
2.11
1.39
Dividend 5 Year Growth Rate
8.32
8.45
8.15
6.91
6.48
18.80
32.67
29.96
38.58
27.55
Payout Ratio (TTM)
Student
Managed
Fund
Stock Research Report
By Timothy Blais & Daniel McCarthy
Growth for BUD is steady, however having the majority of the market share leads to less
growth opportunity than RKY. This is not necessarily bad however when considering
each companies capital spending. Over the past five years, BUD has lowered its capital
spending while still growing strong, while RKY has extensive spending with only a
minimal comparative growth advantage over BUD.
Growth Rates(%)
RKY
BUD
Industry
Sector
S&P 500
Sales (MRQ) vs Qtr. 1 Yr. Ago
3.93
4.70
7.34
7.61
13.31
Sales (TTM) vs TTM 1 Yr. Ago
17.80
4.99
6.97
6.80
11.38
Sales - 5 Yr. Growth Rate
13.65
4.16
5.80
3.86
9.72
EPS (MRQ) vs Qtr. 1 Yr. Ago
31.66 12.20
8.61
8.12
23.26
EPS (TTM) vs TTM 1 Yr. Ago
0.81 13.67
13.25
15.93
21.84
15.38 13.27
13.60
9.59
10.38
Capital Spending - 5 Yr. Growth Rate 32.53 -6.99
-0.81
-0.87
5.96
EPS - 5 Yr. Growth Rate
There is some concern over Busch’s debt ratios. They have higher than average debt
when compared to the industry and RKY. However, this debt is rationalized by long term
investments. We expect a decline in these ratios because Busch is consistently paying off
its debt over the years.
Financial Strength
Quick Ratio (MRQ)
RKY
BUD
Industry
Sector
S&P 500
.75 0.49
0.56
0.64
1.26
Current Ratio (MRQ)
1.04 0.85
1.14
1.25
1.79
LT Debt to Equity (MRQ)
1.26 2.71
2.30
1.11
0.66
Total Debt to Equity (MRQ)
1.34 2.71
2.33
1.35
0.98
Interest Coverage (TTM)
3.06 8.00
9.96
19.31
12.96
Student
Managed
Fund
Stock Research Report
By Timothy Blais & Daniel McCarthy
Profit margins for BUD outperform both the industry and the S&P. Net Profit Margin for
the last 5 years has been more than double that of its largest competitor, RKY.
Profitability Ratios (%)
RKY BUD
Industry
Sector
S&P 500
Gross Margin (TTM)
35.19 40.41
40.08
45.39
47.17
Gross Margin - 5 Yr. Avg.
36.55 37.91
38.32
45.97
46.65
EBITD Margin (TTM)
12.82 28.69
25.68
19.74
18.91
EBITD - 5 Yr. Avg.
11.85 26.70
24.25
19.30
20.67
Operating Margin (TTM)
6.71 22.51
20.17
17.10
18.73
Operating Margin - 5 Yr. Avg.
6.34 20.25
18.50
15.91
17.70
Pre-Tax Margin (TTM)
5.35 19.83
17.74
16.20
16.91
Pre-Tax Margin - 5 Yr. Avg.
6.81 17.71
16.24
14.89
17.14
Net Profit Margin (TTM)
4.02 12.18
11.01
10.90
11.73
Net Profit Margin - 5 Yr. Avg.
4.26 10.80
9.96
9.88
11.25
Effective Tax Rate (TTM)
31.13 38.58
37.68
31.68
31.37
Effective Tax Rate - 5 Yr. Avg.
37.60 38.97
38.58
34.68
34.83
Looking at both current and past data, we can see the Anheuser-Busch is outperforming
both the market and RKY by large margins. ROE, ROA, and ROI are all performing in
the top of the sector. This is an indication of management’s strong performance.
Management Effectiveness (%)
RKY
BUD
Industry
Sector
S&P 500
Return On Assets (TTM)
3.78 12.01
10.93
11.13
6.12
Return On Assets - 5 Yr. Avg.
6.08 10.31
9.81
10.75
7.19
Return On Investment (TTM)
5.00 13.87
12.97
15.93
9.64
Return On Investment - 5 Yr. Avg.
8.22 11.91
11.73
16.14
11.66
Return On Equity (TTM)
15.01 68.73
56.83
34.31
17.86
Return On Equity - 5 Yr. Avg.
12.51 39.77
34.64
31.32
20.04
Student
Managed
Fund
Stock Research Report
By Timothy Blais & Daniel McCarthy
BUD is efficiently utilizing labor when compared to RKY. Also, inventory is being
managed well within BUD as inferred from high turnover rates.
Efficiency
Revenue/Employee (TTM)
Net Income/Employee (TTM)
Receivable Turnover (TTM)
Inventory Turnover (TTM)
Asset Turnover (TTM)
RKY
BUD
693,085 605,316
Industry
387,886
530,327
27,858
73,723
63,562
42,566
138,628
6.04
17.28
14.91
12.38
10.16
13.40
15.06
12.68
6.97
9.96
.94
0.99
1.00
1.14
0.93
CAPM
k=rf +β(rm-rf)
4.38% + (0.6 x 5.5%) = 7.68%
P/E
Avg P/E: 23
Expected EPS (VLIS)= $2.80
5-Year Horizon: $3.40
P/E Ratio: 24
Projected high price for the next 5 years: $3.40 * 24 = $81.6
Lowest price in the last 5 years: $30
Buy Price: $49.80
Intrinsic Value: $75.56
Growth Rate: 10%
Risk Free Rate: 5%
WACC: 6.45%
S&P 500
566,172
Stock Value
Valuepro.net
Sector
Student
Managed
Fund
Stock Research Report
By Timothy Blais & Daniel McCarthy
Valueline Model
Long Term Debt + Shareholder Equity = 6455 + 3505 = 10600
Growth Rate = 12%
Return on Invested Capital = 23%
Shares Outstanding = 790 million
P/E = 20.8
Future Price = (10600 x 1.12^10) / 790 x .23 x 20.8 = 199.37
Discount Future Price at 15% - 1.7% (Dividend Yield) for 10 years
199.37/1.133^10 = $57.19
Board of Directors
August A. Busch III
Carlos Fernandez G.
James R. Jones
Andrew C. Taylor
Douglas A. Warner III
John E. Jacob
Charles F. Knight
Joyce M. Roch´e
Henry Hugh Shelton
Patrick T. Stokes
Insider Trading
Most recent insider trades are conducted by August Busch IV, who is one of the
company’s primary shareholders. Recent sell orders by him raise minimal red flags, but
are something worth noting. Let it also be noted that no one entity owns more than 5% of
the common stock.
Date
14-Aug-03
Insider
BUSCH, AUGUST A. IV
Shares
Transaction
Value*
50,000
Option Exercise at $25.2657 per share.
$1,263,285
50,000
Sale at $51.75 - $51.92 per share.
$2,592,0002
50,000
Sale at $51.85 - $51.97 per share.
$2,596,0002
50,000
Option Exercise at $29.9688 per share.
$1,498,440
50,000
Planned Sale
$2,605,5001
Vice President
14-Aug-03
BUSCH, AUGUST A. IV
Vice President
13-Aug-03
BUSCH, AUGUST A. IV
Vice President
13-Aug-03
BUSCH, AUGUST A. IV
Vice President
13-Aug-03
BUSCH, AUGUST A. IV
Student
Managed
Fund
Stock Research Report
By Timothy Blais & Daniel McCarthy
Vice President
8-Aug-03
SELLINGER, JOSEPH P.
Option Exercise at $20.3438 - $21.6875 per share.
$110,0002
Disposition (Non Open Market) at $0 per share.
N/A
8,132
Option Exercise at $12.0185 per share.
$97,734
1,825
Disposition (Non Open Market) at $53.56 per share.
$97,747
34,000
Sale at $52.5813 per share.
$1,787,764
26,432
Option Exercise at $12.018 per share.
$317,659
26,432
Sale at $52.70 - $52.76 per share.
$1,394,0002
5,214
Vice President
1-Aug-03
BUSCH, AUGUST A. IV
155
Vice President
16-Jun-03
STOKES, PATRICK T.
Chief Executive Officer
16-Jun-03
STOKES, PATRICK T.
Chief Executive Officer
6-Jun-03
LAMBRIGHT, STEPHEN K.
Vice President
6-Jun-03
BURROWS, STEPHEN J.
Vice President
6-Jun-03
BURROWS, STEPHEN J.
Vice President
Risk Factors
 Anheuser Busch has a stronghold in the alcoholic beverage market; however there
is always the risk of market share growth by competitors.
 Investments and joint-ventures overseas leave the company open to exchange rate
risk and sovereignty risk, especially in China.
 Stricter government regulation over bars and restaurants, such as serving hours
and customer ages, can lead to changes in sales for the company. Also, stricter
laws on drunk driving can result in less consumer consumption.
 Large amounts of debt means that the company has a higher risk of bankruptcy.