Zacks Industry Rank Analysis Highlights: AmBev, Brown Forman,
Diageo and Heineken
CHICAGO--(BUSINESS WIRE)--June 14, 2006 Zacks.com releases the latest Zacks Industry Rank. Stocks featured in this week's analysis include AmBev (NYSE:ABV), Brown Forman (NYSE:BF/B), Diageo PLC (NYSE:DEO) and Heineken (OTC:HINKY). To see the Zacks Industry Rank and the trend in earnings estimates revisions for all 208 industry groups, visit http://at.zacks.com/?id=2563.
Zacks Industry Rank Analysis written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.
Ironically, given the inverted yield curve, estimates for brewers and distillers are rising. When the Fed speaks, people listen. This sums up happened last week. Fed Chairman Ben Bernanke and Fed governor Donald Kohn squashed any hopes of a pause at the upcoming meeting. More importantly, given that there will only be two sets of PPI and CPI reports between now and the Aug 8 meeting, the probability of two summertime rate hikes is rather high.
The risk of more rate hikes caused the yield curve to return to its inverted state. When the two-year treasury note trades at a higher yield then the 10-year note (inversion), the implication is that the bond markets anticipate slowing economic growth. An inverted yield curve, however, may also simply mean that short-term bond traders are unsure about how many rate hikes are forthcoming. Such confusion is warranted given that most economic crystal balls are cracked. Personally, I have made a complete reversal on what I think will happen at the June meeting, because of reaction to Big Ben's comments. Following the May employment numbers, I thought the FOMC might pause its trend of rate hikes at the June meeting. What a difference a week makes....
There is always danger that the Fed will tighten too much. The effect of a rate hike is never felt until months afterward; however, current data implies economic stagnation is not a concern. The charts for Dec 2007 copper and aluminum futures show a continuation of strong worldwide demand. Yes, metals prices are off their highs, but they remain well above year-ago levels. More importantly, earnings forecasts for the average company within the Zacks Rank universe1 are unchanged from a week ago. Despite the turbulent markets, estimates are holding firm for 2006 and this is bullish.
Despite the good underlying conditions, the markets have been volatile enough to drive a man to drinking, which brings us to Beverages-Alcoholic. This group has seven stocks with a Zacks #2 Rank or better. Ironically, the home countries for these seven stocks reads like a World Cup gambling line with Brazil - AmBev (NYSE:ABV), The Netherlands - Heineken (OTC:HINKY), England - Diageo PLC (NYSE:DEO) and the U.S. - Brown Forman (NYSE:BF/B) represented.
Behind the numbers is the simple fact that people are apparently drinking more beer. ABV, the sole Zacks #1 Rank stock in the group, said last month that its Brazilian Beer operations generated 8.1% sales volume growth. The company credited the weather, higher disposable income and market share gains. Half of the covering analysts upped their full-year forecasts in response, causing the consensus estimate to rise by 35 cents over the past 30 days to $2.03 per share.
HINKY projects, on its web site, worldwide beer consumption to increase 2-3% annually. The company projects even stronger growth in Central Eastern Europe, Latin America, Asia and Africa because of population growth, higher incomes and a shift from hard liquor to beer. The sole analyst to cover Heineken in the U.S. has more than doubled his forecast for 2006 earnings in response, from $1.09 per share to $2.28 per share.
Fiscal 2007 estimates for Diageo have risen recently. Over the past 30 days, a revision by one of the five covering analysts caused the consensus estimate to rise by four cents to $3.81 per share.
Here in the U.S., Brown-Forman recently delivered fiscal fourth-quarter earnings that were seven cents above expectations. The company generated earnings of 61 cents per share and revenue growth of 16%. Gross margins widened, due in part to pricing power. CEO Paul Varga predicted that fiscal 2007 earnings would be in range of $3.10 to $3.30 per share. Analysts had previously forecast fiscal 2006 profits of $3.16 per share, though one analyst upped his number, causing the consensus estimate to rise by a penny.
To see the complete analysis and listing of the Zacks Sector Rank and Industry Rank scores, go to http://at.zacks.com/?id=2563.
(a)The Zacks Rank is assigned to companies with earnings estimates made available by brokerage analysts. The Zacks' database contains earnings estimates for approximately 4400 companies.
About Zacks Industry Rank and the Zacks Rank
Zacks Industry Rank is calculated by averaging the Zacks Rank for all covered companies within a given industry. The Zacks Rank is assigned to approximately 4400 stocks and ranges from #1 ("Strong Buy") to #5 ("Strong Sell"). Both the Zacks Industry Rank and the Zacks Rank are quantitative indicators designed to cover periods of 1-3 months.
Since 1988, the Zacks Rank has proven that "Earnings estimate revisions are the most powerful force impacting stock prices." A $10,000 investment in the Zacks Rank list made in 1988 would now be worth $1.82 million - equivalent to a 33% annualized return! During the 2000-2002 bear market, Zacks #1 Rank stocks gained 43.8%, while the S&P 500 tumbled 37.6%. Also note that the Zacks Rank system has just as many Strong Sell recommendations (Rank #5) as Strong Buy recommendations (Rank #1). Since 1988, Zacks Rank #5 stocks have underperformed the S&P 500 by 129.7% annually (+5.2% vs. +11.9%). Thus, the Zacks Rank system allows investors to truly manage portfolio trading effectively.
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CONTACT: Zacks.com Charles Rotblut, CFA, 312-630-9880 x 352 firstname.lastname@example.org www.Zacks.com