Anheuser Busch Inbev (NYSE: BUD) is home to some of the most valuable beer brands, including Stella Artois (Belgium), Brahma (Brazil), and Corona (Mexico), in addition to its iconic Budweiser, which earns top honors as the most valuable beer brand in the world.
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And while the name Restaurant Brands International (RBI) (NYSE: QSR) is not recognizable like Anheuser Busch, you may have heard of Burger King or Tim Hortons. If you live in the South, you are likely familiar with Popeye's Louisiana Kitchen.
Both companies have a common large shareholder in 3G Capital, which partnered with Warren Buffett's Berkshire Hathaway in combining Kraft Foods and H.J. Heinz to form The Kraft Heinz Company. The managers behind 3G have proven to be very astute investors who will settle for nothing less than for Anheuser-Busch and RBI to conquer the global beer market and the global quick service restaurant industry, respectively. We'll compare both stocks on key measures, including dividend yield, valuation, growth prospects, and whether or not you prefer cheeseburgers or beer in order to determine which is healthier for your portfolio.
Stock performance and valuation
Over the last year, RBI stock is up over 35%, as its adjusted earnings per share increased 45% in 2016, and analysts currently estimate RBI to grow earnings per share another 16.5% to $1.84 in 2017. This brings the stock's forward P/E ratio to about 32 times earnings.
Meanwhile, Anheuser-Busch stock is down about 9% over the last year. Normalized earnings per share declined from $5.20 in 2015 to $2.83 in 2016, as the beer maker took on several "unusual" costs partly related to the massive $65 billion SABMiller acquisition. Nonetheless, Anheuser-Busch earnings are expected to bounce back in 2017, with analysts currently estimating earnings per share to reach $4.17 for the full year, which puts the forward P/E ratio at about 27 times earnings.
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On dividend payout, Anheuser-Busch has paid out over 50% of its earnings in the last few years, so it doesn't have any room to move that ratio higher, especially with over $100 billion in debt it needs to pay down. Its dividend yield is currently about 3.4%, which is much higher than RBI's 1.1%. BUD paid out $8.4 billion in dividends in 2016 compared to its cash flow of $10.1 billion, although due to the acquisition of SABMiller I would look at 2015 cash flow of $14 billion as more representative of BUD's cash generating ability.
On the other hand, RBI paid out total dividends of $538 million against cash flow of $1.27 billion, leaving some room to pay out more but not much.
Anheuser-Busch's lower forward P/E coupled with its' relatively higher dividend yield of 3.4% (compared to RBI's 1.1%) makes it look like a better buy so far in our review.
But let's take a look at growth expectations to make sure.
Stemming from the influence of 3G Capital, the modus operandi of both Anheuser-Busch and RBI's management teams is to continue investing in existing brands -- growing beer volumes globally for Anheuser-Busch, and, for RBI, expand the geographic footprint of its restaurant chains -- while staying on the hunt for select acquisitions that build the growth profile of the company. Underpinning this strategy is a relentless focus on cost discipline to expand margins, which allows for earnings to grow faster than the rate of revenue growth over time.
So far, this has played out for both companies, as expected. Prior to the acquisition of SABMiller, Anheuser-Busch grew revenue 9.7% cumulatively from 2012 through 2015, while normalized earnings per share grew faster at a cumulative rate of 15.5%. On the other hand, RBI was formed in 2014 with the combination of Tim Hortons and Burger King, so there's not as much history to go by. But we saw the cost management start to really kick in during 2016, when RBI's adjusted earnings per share jumped 45% to $1.58, while revenue grew just 2.5%.
Both companies have recently been active on the acquisition front, as well. The addition of SABMiller gives Anheuser-Busch a presence in virtually every beer market in the world, which is bad news for smaller competitors given the enormous marketing muscle of Anheuser-Busch. The King of Beers now owns seven of the top 10 global brands with 18 beers generating more than $1 billion in annual sales. This powerful combination of major beer brands sets Anheuser-Busch up for a fizzy future. Additionally, management has targeted $2.8 billion in cost savings to squeeze out of SABMiller over the next three to four years. Analysts currently expect the beer maker to grow its earnings 22% annually over the next five years, as Anheuser-Busch integrates SABMiller and realizes the synergies and cost savings from the combination of both companies.
Earlier this year, RBI completed the acquisition of Popeye's Louisiana Kitchen for $1.8 billion. This adds a third strong brand to go along with Tim Hortons and Burger King. Management sees a big opportunity to expand its restaurant chain brands, not only in the U.S., but also internationally. RBI has a long growth runway ahead with a market opportunity several times its current size, according to management. This growth opportunity is reflected in analyst estimates of 19% annual earnings growth for the next five years.
What will it be: cheeseburgers or ice cold beer?
While drinking beer regularly may lead to some unsatisfactory changes to your waist line, some investors may prefer investing in beer as opposed to fast food, given the consumer shift toward healthier eating in recent years.
For others who just want the best stock for their portfolio, you may still prefer the King of Beers for its higher dividend yield, lower valuation, and better earnings growth expectations relative to Restaurant Brands.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Anheuser-Busch InBev NV and Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.