(ABV) AmBev – ADR – Bear of the Day

Anticipating negative impact on AmBev’s (ABV) future financial performance due to Brazilian government’s decision to raise taxes on beer, we are maintaining our long-term Underperform recommendation on AmBev. To shield against the higher taxes, AmBev might inflate its prices in an effort to somewhat offset the negative impact, which may result in lower volumes.

Consequently, the net income may be pulled down. Moreover, the company reported a lower-than-expected second-quarter 2012 earnings of $0.29 per share, missing the Zacks Consensus Estimate of $0.35. Intense competition from global and regional players, coupled with seasonal nature of business, may undermine the company’s future operating performance as well.

Our long-term Underperform recommendation on the stock indicates that it would perform below the broader market. Our target price of $36.00, 21.6x 2012 EPADR, reflects this view.

Zacks Investment Research

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