A Toast to Alcohol Stocks
By Richard Joy
In good times and bad, consumer demand for alcoholic beverages remains pretty consistent. And that's why Standard & Poor's maintains a positive near-term outlook for the U.S. alcoholic beverage industry -- both brewers and wine and spirits producers.
The U.S. brewing industry is expected to benefit from a favorable pricing environment for beer, improving demographic trends, and rising consumption. In addition, moderation in energy and commodity costs, continued productivity improvements, and high industrywide capacity utilization rates should aid earnings. As a result, S&P projects that operating profits for the domestic brewing industry will advance 7% to 8% in 2002.
A BUD FOR YOU.
What about the harder stuff? Overall, the wine and spirits sectors should also hold up well through the current economic doldrums. We expect these industry groups to post operating profit gains of 4% to 5% in 2002 as a result of modest price increases combined with favorable cost trends. In addition, many players will benefit from global acquisitions, which can boost volume and leverage distribution channels, while also providing economies of scale.
Standard & Poor's top pick in the group: brewing giant Anheuser-Busch (BUD ), ranked 4 STARS (accumulate). S&P considers the shares attractive, given the company's growing market dominance, strong free cash flows, and consistent earnings performance.
Joy is an equity analyst covering food, beverage and tobacco stocks for Standard & Poor's