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Friday – JPMorgan has downgraded Ambev S.A. (NYSE:ABEV) stock from Overweight to Neutral following the company’s fourth-quarter results and cost guidance, which suggested a narrower opportunity for positive earnings surprises in 2024.
The firm noted that despite Ambev’s strong performance in Brazil’s beer market, with healthy top-line growth and strategic pricing, the anticipated margin rebound through significant cost reductions is likely to be weaker than expected.
The downgrade reflects concerns about the sustainability of Ambev’s margins, given the less favorable cost reduction outlook and limited visibility on improvements to international operations, particularly in Canada and Argentina. Additionally, the timing of any measures to counteract the tax impacts experienced towards the end of 2023 remains uncertain.
JPMorgan has adjusted its financial expectations for Ambev, reducing the EBITDA estimate for 2024 by 1.6% to R$26,790, which is now 5% below the Bloomberg consensus. The firm also lowered its 2024 earnings per share (EPS) forecast by 4.3% to R$0.79, standing 15% below consensus. The December 2024 price target for Ambev shares has been revised to R$14 from the previous R$15.5.
The valuation of Ambev at 15.9 times the projected 2024 earnings is considered close to JPMorgan’s target of 17 times for the same period, which is based on a comparison with Latin American peers and an expected ~10% compound annual growth rate in EPS over the next four years. The new price target reflects these considerations and the revised earnings outlook.
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