Novice Investing - Bud, You there?

Date: Monday 01st 2008f December 2008 04:06:49 PM

Bud, You there? - 10/26/2005

By: Novice Investing Staff

Anheuser Busch (BUD) fell today after it reported disappointing earnings and guidance. We talked about BUD briefly here. At the time, we felt that BUD is too highly leveraged. It has $ 10.48 of negative net cash, meaning that it has $ 10.48 more debt than it has cash.

Our reasoning was that, it is way too long for BUD to erase its debt (approximately 3.5 years worth of profit). That is too risky for our investment taste. A lot can happen during 3.5 years period. Last year, BUD earned $ 2.88 per share. Despite the consistency, BUD now expects to earn $ 2.42-$2.45 for fiscal year 2006. This is the risk that we feared. And that is why we prefer to invest in companies with positive net cash. With this new information, it now takes BUD 4.25 years to erase all its debt.

Would you want to take that risk? We wouldn't. Unless of course, BUD's stock price fall further. Despite the high debt load, BUD still has a wide moat for its business. But current price doesn't quite suitable for our taste.

It seems like consumers' appetite to BUD's product is waning too. Management stated that they had been slashing prices to drive up volume but to no avail. To be fair, the problem plagues the whole industry, not just BUD. US consumer has been steadily shifting their taste to wine and distilled spirits. We can only wait if BUD can change the consumer's attitude regarding alcoholic beverage.



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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Anheuser Busch Companies Inc. (BUD) or any other securities.

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