Shares of AB InBev (BUD) and Unilever (UN, UL) are under pressure on Thursday after JPMorgan analyst Celine Pannuti downgraded the stocks to sell-equivalent ratings as further earnings cuts seem likely. The analyst told investors that she is "cautious" on European staple stocks due to cost inflation and demand risks that could hurt earnings in fiscal 2022.
SELL AB INBEV, UNILEVER: JPMorgan analyst Celine Pannuti downgraded AB InBev and Unilever to Underweight from Neutral with price targets of $57 and 3,850 GBp, respectively. The analyst is "cautious" on European staple stocks due to cost inflation and demand risks that could hurt earnings in fiscal 2022. Earnings visibility is deteriorating and valuations in the sector remain "elevated" despite underperformance since June, Pannuti told investors in a research note. The analyst's Underweight-rated stocks have estimates that are up to 10% below consensus.
Already in the midst of a multi-year earnings downgrade cycle, Pannuti does not see an inflection point in AB InBev’s earnings momentum near-term. Despite a rebasing of its margin over the past three years, the analyst continues to see pressure on returns as AB InBev faces accelerating competition including the rise of Beyond Beer in core profit pools. Elevated leverage increases AB InBev’s relative risk profile and puts it at a disadvantage to peers from a shareholder return perspective, and the potential sale of Altria’s (MO) stake could remain an overhang, she added.
PRICE ACTION: In late Thursday morning trading, shares of AB InBev have dropped almost 3% to $60.65, while Unilever's stock has slipped over 2% to $54.85.
AB InBev
-1.62 (-2.60%)
Use symbol UL
+ (+0.00%)
Unilever
-1.13 (-2.02%)
Altria Group
+0.64 (+1.28%)