Ambev SA

Ambev’s second-quarter fiscal 2026 results included year-over-year organic revenue growth of 6.1%, with volume up 1.4%. Normalized EBITDA increased 8.9%, reflecting cost management offsetting higher marketing expenses during the FIFA World Cup. Shares fell around 2% in early trading on July 30.

Why it matters: Top-line performance was led by Brazil Beer, up 8.9%, as the region benefited from a demand boost driven by the FIFA World Cup. Volume performance was mixed across markets due to geopolitical tensions in South America and adverse weather in Canada. We view these headwinds as transitory. Ambev maintained its guidance of expecting COGs/hl to increase between 4.5% and 7.5% for Brazil beer. We expect continued acceleration in profitability, driven by premium beer expansion and cost management. Net revenue per hectoliter momentum continued, up 4.6% in the quarter, demonstrating Ambev’s success in expanding its premium portfolio. We expect premium brand strength to offset weaker volumes in Ambev’s mainstream portfolio.

The bottom line: We are maintaining our BRL 18.90 fair value estimate for wide-moat Ambev. At current levels, shares are around 15% undervalued. Despite near-term volatility, we see an attractive growth runway and expect Ambev to maintain its dominant market position through economic cycles thanks to its cost advantage. Our medium-term forecasts remain unchanged; we project a five-year revenue compound annual growth rate of 5.5% and a five-year EPS CAGR of around 6%.

We increase our fair value estimate to $3.60 per share from $3.40. Our fair value estimate implies a fiscal 2026 adjusted price/earnings multiple of 18 times and an enterprise value/sales multiple of 3 times.

We forecast Ambev’s revenue will grow at a 5.5% compounded annual growth rate over the next five years. In fiscal 2026, we expect organic growth of 6.8%, with volume growth of 1.9%. We anticipate stabilization across most of Ambev’s markets to support volumes throughout the year, although the recovery might not be evenly spread. Beyond this, we expect Ambev to reach a structural growth rate of 4.9%, at the upper end of the 4%-5% growth we assume for most other multinational consumer product companies. Across all markets, we expect volume to grow in line with our industry estimates. This includes approximately 2% growth in Brazil, 2% in Latin America South, nearly 3% in Central America and the Caribbean, and a flat to declining volume in Canada. We expect improving price/mix to provide a favorable tailwind to revenue over our explicit forecast.

Gross margin has weakened from 2015 levels due to the volatility of the Brazilian and Argentine markets, followed by the pandemic, and then an inflationary period. However, 2023 marked a change in the trend, with a 140-basis-point improvement in gross margin, driven by efficiency gains and premiumization in key markets. Looking ahead, we expect gross margin to expand by roughly 10 basis points through 2030, supported by premium sales growth.

We project the operating margin to remain relatively stable over our explicit forecast. While we expect Ambev to improve operating efficiency, we also expect advertising and promotion expenses to increase to remain competitive and capture future organic growth.

We assign Ambev a Morningstar economic moat rating of wide, supported by a cost advantage and intangible assets.

Beer is a scalable business; however, for many firms, achieving scale-based advantages is limited due to the provincial nature of beer consumption. Local brands are often leaders in their respective markets, and imported or craft brands are considered a premium offering. Ambev is the largest brewer in South America, with a near-monopoly position in several geographies. For instance, according to Euromonitor and GlobalData, Ambev has a 60% beer market share in Brazil, over 65% in Argentina, El Salvador, and Uruguay, and over 70% in Bolivia.

Ambev’s scale has translated to procurement, manufacturing, and distribution efficiencies, where the firm can produce at a lower cost than competitors. For instance, Ambev is one of the top buyers in the region of barley, hops, and malt. While raw material pricing is influenced by factors such as inflation and supply and demand, we believe Ambev’s scale allows the firm to benefit from bargaining power against suppliers. With sourcing often being localized in beer production, this effect is exemplified in regions with greater market consolidation. This is reflected in the firm’s superior gross margin against local peers.

The strength of Ambev’s cost advantage is most visible during periods of economic downturn, as evidenced by the volatile market of Latin America. For example, prior to the pandemic, Ambev raised prices at levels lower than inflation in Argentina, which was facing immense hyperinflation and currency devaluation. Lower-end domestic brands including Quilmes (Argentina) and Brahma (Brazil) gained market share over the period thanks to Ambev’s competitive pricing.

While beer demand is generally inelastic, customers switch between brands with similar taste profiles and positioning. Brand choice can be conspicuous in markets undergoing premiumization, with customers trading up from mainstream to premium offerings. However, we see no evidence of loyalty for one brand over another with the same positioning. Customers hold the bargaining power, and we think brand intangibles are less prevalent for beer. Instead, availability and pricing are the key determinants in purchasing decisions. For example, despite Ambev’s premium brands having decades-long market presence, Heineken quickly took share when it entered Brazil thanks to competitive pricing.

Instead, we think Ambev’s intangible assets rest in its relationships up and down its supply chain and its route-to-market prowess. Ambev has decades of expertise behind its extensive distribution network, and we think this, paired with its continuous digital and supply chain investments, enables flagship brands to remain top of mind across markets. Going up the value chain, Ambev has sourced raw materials from the same suppliers for decades. The firm also invests in technology and development projects to support local farming communities.

Ambev’s retailers include but are not limited to grocers, stadiums, wholesalers, restaurants, and convenience stores. Customer contracts typically last a year; however, Ambev remains a top choice for retailers because of its expansive beer segment supply combined with its Pepsi bottling arm. For the retailer, vendor consolidation simplifies the supply chain and can lower costs. While we see limited evidence of consumer brand loyalty in mass-produced beer, retailers, whose business is dependent on volume, prefer to give shelf space to high-velocity products. For manufacturers like Ambev, supplying bestselling brands at varied price points makes them an essential partner to retailers, which, in turn, puts them in a strong position to negotiate for limited physical shelf space. Ambev’s strong bargaining power over its supply chain is reflected in its superior working capital. Its 2024 cash conversion cycle of negative 103 days was far more efficient than regional competitor Compañía Cervecerías Unidas (43 days), as well as other large-cap multi-national peers. Channel partners are willing to fund Ambev’s working capital due to higher confidence in the popularity and selling velocity of their products among customers.

Ambev exists as a stand-alone entity but is integrated with InBev through the parent’s 62% shareholding in the company. InBev is the largest global brewer by volume in 2024. InBev produced 575 million hectoliters of beer, more than double the volume of the second-largest brewer, Heineken. Ambev produced 181 million hectoliters of beer in 2024, and its production is concentrated in Central America, South America, and Canada. Several licensing agreements exist between Ambev and InBev, allowing the distribution of the other entity’s brands across select territories. For example, Ambev is the exclusive distributor of Budweiser, Stella Artois, and Beck's across specified Latin America regions. There is also the sharing of production and distribution facilities between organizations, as well as executive leadership rotation.

We believe the relationship with global leader InBev strengthens Ambev’s competitive positioning. First, through integrated production, we see shared scale advantages in the procurement of raw materials, packaging, advertising, as well as fixed-cost leverage. Secondly, Ambev can leverage InBev’s well-established digital platforms across its markets. Finally, Ambev is well-positioned to capitalize on premiumization trends, as it has exclusive distribution rights to leading InBev foreign brands, which it can scale up and deliver across its well-established network. For instance, Budweiser was introduced to the Brazilian market in 1988. Over the last decade, the brand’s market share has more than tripled in the region, closely competing with foreign Heineken brands.

Ambev has monopoly-like positions across several markets, making it virtually impossible for a competitor to match the firm’s regional scale.

Ambev has growth drivers in the shape of both volume and price/mix due to favorable demographics, a combination that is becoming increasingly rare among consumer staples large-cap companies.

With its close relationship with parent AB InBev (which owns 62% of the company), Ambev benefits from ABI’s scale, and the two brewers operate under several cross-licensing and distribution agreements.

As a Latin American near pure-play, Ambev’s returns are more volatile than geographically diversified brewers such as Heineken and Carlsberg.

Canada (12% of revenue in 2025) is less profitable than the group average and is a fundamentally different market to the rest of Ambev’s footprint.

Well-capitalized players can enter the market and price competitively, which could take market share from Ambev.