On Tuesday, BofA Securities revised its price target for Heineken NV (HEIA:NA) (OTC: OTC:HEINY) shares, reducing it from EUR 99.00 to EUR 85.00, while still recommending a Buy rating for the stock. According to BofA Securities analysts, Heineken (AS:HEIN)'s valuation, currently at about 13 times its projected 2025 earnings and at an 18% discount compared to the staples sector, is at a 15-year low and is considered "very much unjustified."
The analysts noted that despite various challenges and a stream of negative news over the past 18 months, including issues in Vietnam for 2023, Nigeria in early 2024, Europe in the summer of 2024, Latin America concerns in the fourth quarter of 2024, and recent developments in India, the business remains robust.
They highlighted that the majority of the earnings per share (EPS) downgrade was driven by foreign exchange and scope changes in Africa, as well as organic factors in Vietnam, which are now on the mend.
Heineken is on track to meet its guidance for the current year, as stated by BofA Securities. The analysts expect the company to guide towards and achieve a 4-8% increase in organic earnings before interest and taxes (EBIT) for 2025, which is in line with consensus estimates of a 6.2% rise. They believe this growth rate is sustainable over the long term, with BofA's own estimate standing at approximately 6.5%.
The report also pointed to Heineken's balance sheet, with a net debt to EBITDA ratio estimated at 2.3 times by December 2024, suggesting the potential for shareholder returns. While buybacks are probably not anticipated for this year, the analysts foresee the possibility from 2026 onwards.
They predict that a €1 billion buyback could be significantly accretive, potentially adding about 1.5% to EPS according to BofA's estimates, and could accelerate Heineken's EPS growth to around 10-11% from 2026.
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