We think that Anheuser-Busch InBev stock (NYSE: BUD) is currently a better pick over its peer, Diageo stock (NYSE: DEO). BUD stock trades at 1.6x trailing revenues, versus 3.3x for DEO. This can be attributed to better profitability for the latter. However, we think this gap in valuation will narrow in favor of BUD in the coming years.
There is more to the comparison, and in the sections below, we discuss why we think BUD will outperform DEO in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation. But, if you want upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
1. DEO And BUD Have Underperformed The Broader Markets
DEO stock has seen a decline of 15% from levels of $145 in early January 2021 to around $120 now, versus a 25% decline for BUD stock from levels of $65 to around $50 over the same period. In comparison, the broader S&P500 index is up 60% over this roughly four-year period.
However, the decrease in DEO and BUD has been far from consistent. Returns for DEO stock were 42% in 2021, -17% in 2022, -16% in 2023, and -10% in 2024, while that for BUD were -13%, 0%, 9%, and -21%, respectively. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, 24% in 2023, and 23% in 2024 — indicating that DEO underperformed the S&P in 2023 and 2024 and BUD underperformed the S&P in 2021, 2023, and 2024.
In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Consumer Staples sector including PG, CL, and KMB, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, has comfortably outperformed the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
2. BUD’s Revenue Growth Is Better
Anheuser-Busch InBev has seen its revenue rise at an average annual rate of 8.3% from $46.9 billion in 2020 to $59.4 billion in 2023. On the other hand, Diageo’s average revenue growth rate of 6.1% from $17.6 billion in fiscal 2021 to $20.3 billion in fiscal 2024 has been comparatively slower. Diageo’s fiscal ends in June.
Anheuser-Busch InBev’s revenue growth can partly be attributed to a rebound in consumer demand post-pandemic and the company’s focus on premiumization. However, the company saw its North America revenue decline by 12% y-o-y in 2023, amid lower Bud Light sales. The company faced backlash after it decided to feature Bud Light in a social media promotion by a transgender influencer, Dylan Mulvaney, in April 2023. This was followed by calls for a boycott of Bud Light by some influential voices. Looking at 2024, North America revenue has declined 3% for the nine-month period ending September, primarily due to a 4.5% fall in volume. The volume for China declined in double-digits amid a softness in consumer demand.
Diageo revenue growth was also aided by a rebound post-pandemic. However, the company is now seeing high inflation and weakening consumer spending weigh on its sales. It has seen its volumes decline, especially in the North America region. Consumers are shifting to cheaper alternatives rather than spending on top brands, such as Johnnie Walker.
Both BUD and DEO are likely to see revenue grow at a low single-digit rate in the coming years, primarily driven by pricing actions. The headwinds on volume and forex currency translation are expected to continue to weigh on the top-line growth in the near term.
3. DEO Is More Profitable And Offers Lower Risk
Anheuser-Busch InBev’s operating margin fell from 26.9% in 2020 to 24.0% in 2023, while Diageo’s operating margin contracted marginally from 30.0% to 29.6% over the last three years. If we look at the last twelve-month period, Diageo’s operating margin of around 30% fares better than 25% for Anheuser-Busch InBev.
Looking at financial risk, Diageo fares better. Its 32% debt as a percentage of equity is lower than 82% for Anheuser-Busch InBev. Furthermore, its 3.3% cash as a percentage of assets is similar to 3.6% for the latter, implying that Diageo has a better financial position.
4. The Net of It All
We see that BUD has seen better revenue growth. However, DEO is more profitable and offers lower financial risk than BUD. Now, looking at the prospects, we believe BUD is the better choice of the two. At its current levels, DEO stock is trading at 3.3x trailing revenues, versus the stock’s average P/S ratio of 4.1x over the last three years. On the other hand, BUD stock is trading at 1.6x trailing revenues, lower than the stock’s average P/S ratio of 2.2x over the last three years. Returning to a historical valuation multiple would imply over 35% growth for BUD stock from here, compared to around 25% growth for DEO stock. We think that the headwinds from higher inflation and softness in volume are already priced in. While both stocks offer upside potential in our view, investors will likely be better off picking BUD over DEO for the next few years, given its more attractive valuation.
While BUD may outperform DEO in the next three years, it is helpful to see how Diageo’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
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