On Friday, JPMorgan (NYSE:JPM) adjusted its stance on Ambev (ABEV3:BZ) (NYSE: ABEV), downgrading the stock from Overweight to Neutral and setting a new price target of BRL14.00 for the shares, a decrease from the previous BRL15.50. The revision follows Ambev's fourth-quarter results, which fell short of expectations, and a cost guidance that suggests a more challenging outlook for earnings growth in 2024.
Ambev, known for its performance in the Brazilian beer market, has demonstrated strong top-line growth, strategic management of selling, general, and administrative expenses (SG&A), robust pricing strategies, and innovation. Despite these positive factors, concerns have been raised regarding the company's ability to sustain margins due to a less significant cost reduction than anticipated, based on the latest guidance provided by the company.
The analyst from JPMorgan highlighted the uncertainty surrounding improvements in Ambev's international operations, particularly in Canada and Argentina, and the timing of any measures to mitigate the impact of tax increases that were introduced in late 2023.
As a result, JPMorgan has revised its EBITDA forecast for Ambev in 2024, reducing it by 1.6% to R$26,790, which now stands 5% below the Bloomberg consensus. Additionally, the firm's 2024 earnings per share (EPS) estimate has been lowered by 4.3% to 0.79, marking a 15% deviation from the consensus.
The December 2024 price target for Ambev has been adjusted to BRL14.00 from the previous BRL15.50. The current valuation of Ambev's stock at 15.9 times the projected 2024 earnings per share (PE) is considered by JPMorgan to be close to their target of 17 times the 2024 earnings estimate (16 times forward). This valuation is deemed appropriate when compared with Latin American peers and considering an estimated ~10% compound annual growth rate (CAGR) in EPS for the next four years.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.