Anheuser-Busch InBev: Top Tipple - Increasing PT to €74 on Superior FCF Conversion

Core Conclusion

Overweight reiterated, target raised to €74 (from €70.5) via DCF (€77) and P/E (€71) blend. ABI’s free cash flow conversion runs ~30% higher than the sector, yet the stock trades at only a 7% P/E premium. Q1 EPS beat by 9%, FY26 EPS raised 4%, and organic EBITDA is tracking toward the upper end of the 4-8% guidance. At 7.7% FCF yield vs staples at ~5%, the stock offers a defensive cash return in a macro-uncertain environment.

What the Market Is Underestimating

The market prices ABI on adjusted P/E (17.4x vs staples 16.3x), ignoring that cash generation is structurally superior. Over the next three years, FCF after leases and minority dividends is forecast at ~30% higher than the sector as a proportion of adjusted net income. This means reported earnings understate the cash available for buybacks and deleveraging. The 270bp FCF yield advantage is not reflected in the modest P/E premium. In a period of macro and cost pressures, strong FCF should command a higher multiple.

Evidence Chain

• Q1 beat drives estimate upgrades: Q1 EPS exceeded consensus by 9%. FY26 EPS raised from $4.38 to $4.57. Organic sales growth estimate increased to 5.1% from 3.6%, reflecting volume recovery (1.2% vs 0.5% previously) and improved price/mix. FY26 organic EBITDA growth now expected at +7.1% (vs +6.1% prior), near the top of the 4-8% guidance, even with heavy FIFA marketing spend.
• FCF conversion advantage is structural: ABI’s three-year forecast FCF/adjusted net income ratio is ~30% above the staples average. Depreciation and interest tailwinds add to the gap. FY26 FCF yield of 7.7% compares with staples at ~5%. This underpins buyback capacity and a $6bn program.
• Valuation methodology revised: Previous target assumed 0% P/E premium to staples. New P/E-based value of €71 (18.2x CY26) assumes a 15% premium, justified by the FCF advantage. DCF yields €77 (WACC 8.2%, TG 2.5%). The blended €74 target implies 9% upside from €67.8.

Key Divergences & Risks

Primary risks to the rating:

• US market share recovery slower than expected post-Bud Light.
• China consumption growth disappoints.
• Input cost inflation or USD strength reversing margin gains.
• Regulatory changes (excise duties, alcohol policies).
• Buyback execution below $6bn announced program.

Valuation & Trading Implications

At €67.8, ABI trades at 17.5x FY26 P/E (7% premium to staples) but a 7.7% FCF yield—a 270bp edge. The new €74 target offers 9.1% upside. For investors seeking high-cash-generation within staples, the FCF yield provides a margin of safety. The P/E premium expansion from 0% to 15% in our model is supported by the structural FCF advantage and buyback optionality. Top Pick in Beverages.

Appendix: Key Estimate Changes