In this article I utilize A+ Investor Stock Grades offered by AAII to offer an insight into three beer stocks. Coming to the point, should you mull over the beer stocks of Anheuser-Busch Inbev S.A. (BUD), Heineken N.V. (HEINY) and Molson Coors Beverage TAP?

Although the brewing industry has been experiencing an upsurge in diverse niche players such as microbreweries and craft breweries, it’s still the domain for a select few influential corporations. These dominant corporations often have multinational presence and play a key role in determining market trends and catering to consumer needs due to their vast resources and wide market reach. These industry giants have been embracing the trend of product portfolio diversification in order to cater to the growing consumer interest in nonalcoholic and low-calorie beer options. It’s evident from the competitive landscape of the industry that whether it’s big or small, companies need to constantly adapt to changing consumer habits and regulatory requirements to sustain or increase their market shares.

The brewing industry is a vibrant and evolving subgroup within the global beverage market. According to Straits Research, beer is the most consumed alcoholic beverage worldwide, ranking after water and tea. The industry is multi-faceted, catering to diverse consumer preferences and production scales. It includes macrobreweries that operate on a global level, microbreweries that emphasize on crafting small batches of beers, and craft breweries that strike a balance between mass production and artisanal qualities.

As per Straits Research, the estimated size of the global beer market was $721.1 billion in 2022, and it is expected to grow at a compound annual growth rate (CAGR) of 6.9% to reach a whopping $1.32 trillion by 2031. Factors driving the market growth are the rising number of breweries coupled with a consistent increase in demand for alcoholic beverages due to rising standards of living and evolving lifestyles.

When analyzing a company, it is helpful to have an objective framework that allows you to compare companies in the same way. This is why AAII created the A+ Stock Grades, which evaluate companies across five factors that have been shown to identify market-beating stocks in the long run: value, growth, momentum, earnings estimate revisions (and surprises) and quality.

Using AAII’s A+ Stock Grades, the following table summarizes the attractiveness of three beer stocks—Anheuser-Busch, Heineken and Molson Coors—based on their fundamentals.

AAII’s A+ Stock Grade Summary for Three Beer Stocks

Anheuser-Busch Inbev S.A. (BUD) is a producer, distributor and marketer of beer, alcoholic beverages and soft drinks. Its brand portfolio includes global brands such as Budweiser, Corona and Stella Artois; international brands, including Beck’s, Leffe and Hoegaarden; and local champions such as Bud Light, Skol, Brahma, Antarctica, Quilmes, Victoria, Modelo Especial, Michelob Ultra, Harbin, Sedrin, Klinskoye, Sibirskaya Korona, Chernigivske, Cass and Jupiler. The company’s soft drinks business consists of both its own production and bottling and distribution agreements with PepsiCo PEP. Ambev, which is a subsidiary of the company, is a PepsiCo bottler. Brands that are distributed under these agreements are Pepsi, 7Up and Gatorade.

The company ranks D in Value Grade due to its high Value Score of 37. Its Value Grade is derived from various factors like price-to-sales ratio, price-earnings ratio, price-to-book-value ratio, price-to-free-cash-flow ratio, shareholder yield and the ratio of enterprise value to earnings before interest, taxes, depreciation and amortization aka Ebitda. With a price-earnings ratio of 20.8, a price-to-book ratio of 1.73 and a price-to-free-cash-flow ratio of 22.7, it sits in the 57th, 52nd and 59th percentiles accordingly.

Growth Composite Score takes into account a firm’s year-over-year and long-term sales growth, and its effective generation of stable cash from core operations. At present, Anheuser-Busch has a Growth Grade of C with a Growth Score of 57. Over the past five years, it achieved a sales growth rate of 0.5% and recorded year-over-year sales increase twice. Consistent positive cash generation from operations is another positive attribute over the last five years.

Anheuser-Busch has a Momentum Grade of B, attributed to its Momentum Score of 65. This indicates that the stock has shown impressive weighted relative price strength over the previous four quarters. Factors contributing to this score include above-sector-median relative price strengths of 3.6% in the recent quarter, –2.5% in the penultimate quarter and 7.5% in the fourth most recent quarter. This is slightly dampened by the below-sector-median relative price strength of –19.3% in the third most recent quarter. The subsequent ranks end up as 66, 62, 25 and 84, in order from latest quarter. The overall weighted four-quarter relative price strength is –1.4%, yielding a final rank of 65. The calculation applies a 40% weighting to the most recent quarterly price change, and 20% each to prices from preceding three quarters.

Earnings estimate revisions provide an insight into a firm’s short-term prospect as perceived by analysts. For Anheuser-Busch, this figure stands at an unimpressive Grade of F, based on its score of 20. Factors leading to this score include the statistical significance of the firm’s latest two quarterly earnings surprises and the percentage variation in its consensus estimate for the present fiscal year over the past one and three months.

Anheuser-Busch reported a positive earnings surprise of 3.6% for the third quarter of 2023, and in the prior quarter reported a positive earnings surprise of 6.5%. Over the last month, the consensus earnings estimate for full-year 2023 declined to $3.03 per share based on two upward and three downward revisions. The 1.8% decline in its earnings estimate ranks in the bottom 11th percentile of all stocks.

Heineken N.V. (HEINY) is a Netherlands-based company engaged in the brewing and selling of beer. Heineken’s product range mainly consists of beer, soft drinks and cider. The company operates through five segments: Africa, Middle East and Eastern Europe; Americas; Asia-Pacific, Europe and head office and other/eliminations. The Africa, Middle East and Eastern Europe segment includes brands such as Heineken, Primus, Amstel, Walia and Goldberg. The Americas segment includes brands such as Heineken, Tecate, Amstel, Sol and Dos Equis. The Asia-Pacific segment includes brands such as Heineken, Anchor, Larue, Tiger and Bintang. The Europe segment includes brands such as Heineken, Cruzcampo, Birra Moretti, Zywiec and Strongbow Apple Ciders. The company owns, markets and sells in more than 190 countries.

The company has a Value Grade of D, based on its Value Score of 25, which is expensive. The company has above-sector-median measures for its price-to-book and price-to-free-cash-flow ratios, which are 2.68 and 32.7, respectively. Additionally, the company has a below-sector-median price-earnings ratio at 20.3.

The company currently has a Growth Grade of A, based on a Growth Score of 89. The company has a five-year sales growth rate of 5.9% and has seen sales increase year over year in four out of the last five years. Cash from operations has also been positive for five consecutive years.

The company showcases a Momentum Grade of C, traced back to its Momentum Score of 55. This score is calculated from relative price strengths exceeding the sector-median at -2.9% in the latest quarter and 11.9% in the fourth previous quarter. However, it is somewhat balanced by a lesser than sector-median relative price strength of -11.2% in the second previous quarter and -14.3% in the third previous quarter. The ranks come out as 54, 46, 33 and 88, from the latest quarter sequentially. The aggregated four-quarter relative price strength stands at -3.9%.

Heineken presently holds no Quality Grade due to null values for five out of the eight variables that underly the Quality Score. To receive a Quality Score, stocks need to showcase a valid (non-null) measure and corresponding rank for a minimum of four out of the eight quality measures.

Molson Coors Beverage Co. (TAP) is classified as a holding company. Its operations are divided into two segments: Americas and EMEA and APAC. The Americas segment primarily involves the production, marketing, and sales of its brands and other owned/licensed brands in the U.S., Canada, and various Caribbean, Latin, and South American countries. It oversees around nine main breweries, nine craft breweries, and two container functions. Additionally, it features a partnership associated with beer distribution in Ontario, Canada, and Brewers’ Retail Inc. The EMEA and APAC segment involves the production, marketing, and sales of primary and other owned/licensed brands throughout various European countries and chosen countries in the Middle East, Africa, and Asia-Pacific. This segment operates 11 main breweries, six craft breweries, and one cidery.

Molson Coors showcases a Value Grade of C, which is tagged to its Value Score of 58, an average rating. The company’s price-to-sales, price-earnings, and price-to-book ratios, which are 1.17, 54.0, and 1.02 respectively, rank below average. On the other hand, one above-average ranking contributes to its Value Grade: a shareholder yield of 2.9%.

The current Growth Grade for the company is C, with a Growth Score of 48. Over the past five years, the company has seen a sales growth rate of -0.6% and has witnessed an increase in sales for two out of the past five years. Positive Cash from operations has been consistent for five successive years.

An Earnings Estimate Revisions Grade of C is held by Molson Coors. This is based on a neutral score of 59. In the third quarter of 2023, the company reported an earnings surprise of 21.9% and in the previous quarter, a positive earnings surprise of 8.9% was reported. The consensus earnings estimate for Q4 2023 over the last month has been steady at $1.116 per share, with three upward adjustments and two downward revisions.

Molson Coors has a Quality Score of 76, awarding it a Quality Grade of B. This is quite strong. The Quality Grade A+ is given as the percentile rank of the average percentile ranks of return on assets (ROA), return on invested capital (ROIC), ratio of gross profit to assets, buyback yield, the change in total liabilities to assets, ratio of accruals to assets, and the F-Score. If any of the measures are invalid, the score is variable and considers the valid remaining measures.

The company has a weak ranking in terms of return on invested capital and the ratio of gross income to assets, but its F-Score is strong. Molson Coors has a 13.4% return on invested capital, 16.0% ratio of gross income to assets, and an F-Score of 8 (with 9 being the highest possible score). The sector median return on invested capital is 18.8%, median gross income to assets is 23.3%, and median F-Score is 4. Other metrics for Molson Coors that rank below the sector median include return on assets, change in total liabilities to assets, and Z-Score. Apart from the F-Score, the only metric where the company ranks higher than the sector median is its buyback yield, which stands at 0.3% in comparison to the sector’s median of -0.2%.

The stocks meeting the criteria of the approach do not represent a “recommended” or “buy” list. It is important to perform due diligence.

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