Analyst Note| Philip Gorham, CFA, FRM |
Ambev reported strong volume growth in the third quarter, implying strong execution and market share gains in Brazil. Although organic revenue growth of 15% exceeded our forecast, we are adjusting our forecasts to reflect a sooner-than-expected rebound, rather than a structurally higher growth rate, out of caution, and we retain our BRL 18 fair value estimate and our wide moat rating. We are surprised by the subsequent sell-off, and think it creates an attractive entry point to a stock that was already undervalued. We believe the negative market reaction is related to concerns over the EBIT margin going forward, and perhaps some worries that pricing strategies during the quarter indicate less visibility into pricing. While both of these concerns are legitimate in the short term, we think the algorithm is in good shape for the long term.