Brazilian Beer Woes Turn Barclays Into Ambev’s Biggest Bear

(Bloomberg) -- Barclays sees mounting challenges for Ambev SA, the unit of Anheuser-Busch InBev in charge of half of the Americas.

Ambev's American depositary receipts were downgraded to underweight from equal-weight by analysts led by Laurence Whyatt. “We see several challenges for ABEV, particularly in its core business (Beer Brazil) that we believe are likely to get worse before they can get better,” the analysts said in a report Tuesday.

A combination of limited pricing power, aggressive competition, higher input cost, and limited volume growth in Brazil -- Ambev's home country and largest market -- should lead to further margin contraction and lower cash generation, according to Barclays. The bank lowered its price target on the ADRs to $3.50 from $5, now the lowest among analysts tracked by Bloomberg.

Barclays joins UBS Group AG in the bearish camp. UBS analysts reiterated their sell rating on the stock in late October after weak third-quarter results led to a slump in the shares. Ambev saw Brazil beer volume shrink 2.8% in the quarter, and Barclays expects the category's profitability to contract further.

In addition to the two sell ratings, Ambev's ADRs have three buys and six hold recommendations. The average analyst price target is $4.94, according to data compiled by Bloomberg.

To contact the reporters on this story: Vinícius Andrade in São Paulo at vandrade3@bloomberg.net;Fabiola Moura in Sao Paulo at fdemoura@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Catherine Larkin

©2019 Bloomberg L.P.

Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.