USA: Sober investors would pay a premium for Anheuser-Busch (BUD). The company controls 50% of the U.S. beer business, which gives it economies of scale that competitors can't touch. It can and does outspend rivals on advertising and distribution, yet still boasts higher profit margins. Its brands are so popular that Busch has been able to raise prices seven consecutive years, The Kiplinger Washington Editors posted on February 21. Merrill Lynch analyst Christine Farkas credits Busch with "one of the strongest management teams among consumer companies."

The Busch story doesn't stop at the water's edge. China has replaced the U.S. as the world's largest beer market, and last year the company acquired Harbin Brewery, China's fourth-largest brewer. Busch also has a partnership with the biggest brewer, Tsingtao, and has built its own breweries in China as well. By volume, Busch's international sales were up almost 65% in 2004, and foreign markets will drive future growth.

Not everything is rosy, though. Standard & Poor's notes in the latest issue of The Outlook that Busch lost market share in the fourth quarter of 2004. Archrival Miller (owned by London-based SABMiller) has been making a comeback. Worse yet, some drinkers are switching from beer to wine and liquor.

But Busch is battling back by increasing its marketing to bars and liquor stores and by rolling out new brands in eye-catching cans and bottles. One of the brewer's new drinks, B-to-the-E, is a beer that contains caffeine and ginseng and comes in ten-ounce red-and-black cans. The company's Budweiser Select brand debuted in stores on Monday.

"New products and marketing efforts will likely boost demand and stabilize the company's market share over the next six months," say S&P analysts. They rate the stock a "buy" and see shares rising to $56 over the next twelve months.

Busch's numbers are solid. Analysts, on average, expect earnings to grow 9% annually over the next few years, according to Thomson First Call. The stock yields 2%, and the company has raised its dividend 28 consecutive years. At $48, Busch sells at about 18 times the 2005 consensus earnings estimate of $2.74 per share, versus a P/E of 17 for the S&P 500. Notes Bill Nygren, manager of Oakmark Fund: "You don't have to pay a premium price for this premium company."

23 February, 2005