Ambev S.A. (ABEV): A Bull Case Theory

We came across a bullish thesis on Ambev S.A. on CompoundingLab’s Substack. In this article, we will summarize the bulls’ thesis on ABEV. Ambev S.A.'s share was trading at $2.57 as of December 1st. ABEV’s trailing and forward P/E were 13.45 and 13.26 respectively according to Yahoo Finance.

Ambev appears undervalued, trading at roughly a 23% discount to fair value, implying potential 9% annual alpha if the gap closes within three years. The valuation assumes a 10-year and terminal negative USD growth of 2–3%, a WACC of 8.5%, an 11.6× EBITDA exit multiple, and a sales-to-capital ratio of 1.1. While Ambev has grown ~12% in BRL in 2024 and achieved a 10% long-term CAGR locally, its USD performance reflects translation losses with 2–4% declines in EPS and FCF over the past decade.

Nonetheless, easing input costs, pricing discipline, and premiumization (via brands like Budweiser, Stella, Corona) are driving margin recovery. Stabilizing volumes, operating leverage from Brazil’s scale, and strong performance in Latin America South could further boost profitability. Currency stability, falling interest rates, and Ambev’s net cash position enhance cash generation and support 5–6% dividend yields, while AB InBev’s backing strengthens procurement and digital transformation (BEES platform).

At ~$2.2/share, the stock trades at 14–15× forward P/E versus its 17–18× historical average, suggesting potential re-rating toward $2.9/share as margins normalize. However, risks include renewed cost inflation, FX headwinds from BRL depreciation, macro uncertainty in Brazil and Argentina, competitive pressures from Heineken and local brewers, and limited long-term volume growth in a mature beer market.

Execution missteps or reduced dividends could weigh on sentiment. Despite strong fundamentals, the author remains cautious, citing persistent FX risk and choosing to stay on the sidelines despite the apparent valuation discount.

Previously we covered a bullish thesis on Molson Coors Beverage Company (TAP) by Tyler Moody in September 2024, which highlighted stable operations, attractive shareholder yield, and defensive positioning. The stock has depreciated approximately 15.23% since our coverage due to weaker demand and limited margin expansion. The thesis still stands. CompoundingLab shares a similar view but emphasizes Ambev’s emerging market growth and premiumization.

Ambev S.A. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 23 hedge fund portfolios held ABEV at the end of the second quarter which was 21 in the previous quarter. While we acknowledge the potential of ABEV as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.