Everyone is focused on the Bud Light transgender controversy. They are missing out on a stock deal opportunity.

The drop was prompted by a promotional splash for Bud Light featuring transgender influencer Dylan Mulvaney, which prompted many conservatives to boycott the brand.

While Bud Light’s problems hurt its US brands, BUD only gets 30% of its profits from the US and Canada. The company has strong positions elsewhere around the world, and is anchored in Central and South America, where it generates about half of its profits. The brewery business is showing signs of recovery, and BUD’s improved balance sheet has allowed the company to increase its dividend, now yielding 1.4%.

“The issues in the US are a serious challenge today, but they seem to be leveling off,” says Robert Ottenstein, analyst at Evercore ISI. [negative] Volume trends start to moderate soon – and we think there’s a good chance [they will]— this is likely to prove an attractive entry point.” He outperformed the stock with a $80 price target.

However, investors may need to be patient. Seeing buds bloom, Wall Street cut its 2023 estimate by about a dime a share and isn’t seeing earnings growth this year. The bad guy: A 20% drop in sales off Bud Light’s premises — those in retail stores — since the controversy erupted more than a month ago, according to Beer Business Daily. Some investors suspect the decline in bars and restaurants could be worse.

Moreover, the controversy appears to be hurting other BUD brands, including Budweiser and even Michelob Ultra — one of the company’s few bright spots domestically, which has suffered steady declines in total US volume for a decade.

However, BUD’s global beer volume rose 1.8% in 2022 and 0.9% in the first quarter, with revenue up 12.4% thanks to higher prices. Citigroup analyst Simon Hales, who rates BUD a Buy with a target of $73.50, forecasts a 13% decline in Bud Light’s volume in the last three quarters of 2023, but argues that its problems are already discounted in the share price.

There have been encouraging developments. BUD shifted from an acquisition-intensive growth strategy to one focused on increasing volume and revenue growth.

The architect of the old approach, Carlos Brito, stepped down as CEO in 2021, and was replaced by another Brazilian, Michel Docris. Now, the company emphasizes higher-priced beers, led by Corona, Stella Artois, and Budweiser, which are marketed worldwide. In the first quarter, earnings rose 9% year-over-year to 65 cents a share. Corona revenue increased 11.9%; Stella Artois, 13.3%; and Budweiser, 17.8% outside its home markets of Mexico, Belgium and the United States, respectively.

Net debt fell to $69.7 billion at the end of the year 2022, compared to $76.2 billion in 2021, which helped lift BUD’s credit ratings from Moody’s and Standard & Poor’s to a single A rating from BBB and its equivalent. For years, especially after it bought SABMiller for $100 billion in 2016, it was a hit on BUD to take on so much debt for acquisitions.

Ottenstein and some other analysts think the Bud Light controversy will die down by next year. That’s reflected in FactSet’s consensus call for a 15% 2024 dividend increase to $3.69 a share, which puts the stock at a reasonable 16 times forward earnings. Docris and other executives were bullish on the company’s first-quarter earnings conference call in early May, saying they expected 2023 earnings before interest, tax, depreciation and amortization, or Ebitda, to rise 4% to 8%, in line with its average. range directives. They also expect revenue this year to rise at a faster rate than Ebitda.

One problem: The brewery is incorporated in Belgium, so it doesn’t qualify to be in

S&P 500 index.

This gives US institutions even fewer reasons to own them.

Although Mulvaney’s marketing strategy backfired, he was addressing a real problem: the long-running decline of Bud Light, BUD’s No. 1 domestic brand, which accounts for 30% of US sales. Volumes have fallen by a third since 2010, even before the latest crash.

BUD plans to triple spending on Bud Light marketing this summer. But his handling of Mulvaney’s situation raised questions about his marketing and crisis management capabilities. The company’s initial statement read: “We never intended to be part of a discussion that would divide people. We’re in the business of bringing people together for a beer.” writes Nick Beaulieu, founder and CEO of Comsint, a strategy advisory firm Barron that such “dull verbosity is not likely to unite anyone.”

Two US marketing executives involved in the initiative have been placed on leave, and HSBC analyst Carlos LaBoye says more leadership changes may be needed. But whatever happens, stocks are cheap enough to warrant the look of bargain hunters.

write to Andrew Barry at [email protected]