Analyst Cheers Beer Stock With Rare Upgrade

BofA-Merrill Lynch is bullish on BUD's valuation

Managing Editor
Jul 29, 2019 at 9:19 AM
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The shares of Anheuser-Busch Inbev NV (NYSE:BUD) are up 1.4% in electronic trading, set to open a chip-shot away from Thursday's earnings-induced annual high of $102.70. BofA-Merrill Lynch upgraded the brewer to "buy" from "neutral," with the analyst in coverage praising the company's macro environment and reasonable valuation. 

Today's positive price action could have BUD toppling its year-over-year breakeven point. The beer stock has spent most of 2019 carving out a path higher, with pullbacks contained by its ascending 100-day moving average. What's more, the equity has turned in only one monthly loss this year, and is heading toward a July gain of more than 13.5%, through Friday's close at $100.49. 

Despite a 53% year-to-date gain, analysts remain quite skeptical. Prior to today, seven of nine brokerages covering BUD rated it a "hold" or "sell." Plus, the stock's consensus 12-month price target of $101.90 is a slim 1.4% premium to Friday's closing perch. More bull notes could keep the wind at BUD's back.

Those wanting to bet on the beer stock may want to consider buying short-term options, which are pricing in unusually low volatility expectations in the wake of the company's earnings report last week. This is based on BUD's Schaeffer's Volatility Index (SVI) of 19%, which registers in the 20th percentile of its annual range.

In addition, the equity has had a tendency to make bigger moves than what options were pricing in over the past year. The stock's Schaeffer's Volatility Scorecard (SVS) sits at 96 (out of 100), which means buying premium has been an attractive strategy during the last 12 months.

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