Anheuser-Busch InBev is set to report Q4 earnings tomorrow morning – we don’t expect much in terms of surprises in the quarterly result. Our estimate is broadly consistent with consensus – slightly lower on revenues (consensus is $10.26 billion), recognizing that the constant currency organic revenue comp in the lapping period is the most difficult comparison of ’11 (+5.7%). We are close to consensus with our EBITDA estimate of $4.37 billion (consensus of $4.39 billion).
We don’t expect any material commentary on the proposed transactions between Anheuser-Busch InBev and Grupo Modelo. Our view is that the parties, including the Department of Justice, continue to negotiate, and that the outcome will be consistent with our belief that the new transaction satisfies the concerns expressed by the DOJ when it filed suit to block the transaction.
Having said that, we recognize that the risk/reward profile on one of the parties to the transaction, STZ, is asymmetric. We believe that STZ, with approval of the beer transaction, can continue to rerate toward $50/share. However, there is a good bit of air underneath the name and even a 5% probability of further illogic on the part of the DOJ (downside to $30/share) makes us hesitant to be aggressive on STZ at this point.
ABI, on the other hand, still has significant free cash flow support (approximately $6 per share on 2012 numbers) and can be defended on weakness – which is exactly what we would do should any material weakness develop in the wake of the company’s Q4 earnings release.
Call with questions,
Rob
Robert Campagnino
Managing Director
HEDGEYE RISK MANAGEMENT, LLC
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Matt Hedrick
Senior Analyst