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Why Ambev SA (ABEV) Stock Is Down Today

NEW YORK (TheStreet) -- Ambev SA  (ABEV), a local Brazilian unit of Anheuser-Busch Inbev SA  (ABI), fell Wednesday thanks to Brazil's plan to institute higher taxes on beer prior to the World Cup this summer.

Bloomberg reports the Brazilian government will announce today a plan to increase taxes on beverages including beer, soda and bottled water beginning on June 1. Last month, Brazil suffered its first sovereign credit downgrade in 10 years when Standard & Poor's downgraded the country's credit rating one level to BBB-, its lowest investment-grade rating, and issued a stable outlook. As a result, the nation wants to strengthen efforts to increase revenue.

The planned tax increase would raise 1.5 billion reais, or $671 million, by the end of the year and would only have a minor effect on inflation, federal tax agency head Carlos Alberto Barreto told reporters in Brasilia on Tuesday.

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The World Cup begins on June 12, and the Brazilian government expects 600,000 foreign tourists at the games across 12 Brazilian cities.

The stock was down 5.37% to $7.23 at 12:24 p.m.

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Separately, TheStreet Ratings team rates AMBEV SA as a "buy" with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate AMBEV SA (ABEV) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income, notable return on equity, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • AMBEV SA reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, AMBEV SA increased its bottom line by earning $0.25 versus $0.20 in the prior year. This year, the market expects an improvement in earnings ($0.35 versus $0.25).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Beverages industry. The net income increased by 623.1% when compared to the same quarter one year prior, rising from -$211.67 million to $1,107.23 million.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Beverages industry and the overall market, AMBEV SA's return on equity exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for AMBEV SA is currently very high, coming in at 70.08%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 27.40% is above that of the industry average.
  • ABEV's debt-to-equity ratio is very low at 0.07 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.95 is somewhat weak and could be cause for future problems.
  • You can view the full analysis from the report here: ABEV Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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