ANHEUSER-BUSCH MAY BE GOOD STOCK VALUE

Anheuser-Busch is a company whose name is familiar to all Southeast Missourians. Its stock is traded on the New York Stock Exchange under the symbol BUD, and it controls about 45 percent of the U.S. beer market. With its ties to Asia, Europe and South America, it is also the largest brewer in the world. Its aggressive marketing practices have drawn the attention of the Justice Department, and the market (driven by fear and greed) appears to have overreacted. As a result, there may be a good value investing opportunity in this stock.

Eberhard Anheuser bought the unprofitable Bavarian Brewery in St.Louis from George Schneider, its founder, in 1860. His son-in-law, Adolphus Busch, joined the company in 1865 and assisted Carl Conrad in creating Budweiser in 1876. Modeled after light Bohemian beers, Budweiser was the basis for the growth of the brewery.

Adolphus died in 1913, leaving the company in the hands of his son, August. The company was renamed Anheuser-Busch in 1919 and was forced out of the brewing business during Prohibition (1920-33). August kept the company alive by selling soft drinks, syrup, truck bodies, refrigeration units and yeast.

The company quickly returned to the brewing business when Prohibition was repealed in 1933. To celebrate the occasion, August delivered a case of Budweiser to President Franklin Roosevelt in a carriage drawn by Clydesdale horses. The huge Clydesdales became the symbol of the company that would become the largest brewer in the world before the end of the 20th century.

During the 1950s, the company became the No. 1 brewer in the United States, acquired the St. Louis Cardinals baseball team and established the Busch Entertainment theme-park division. During the 1980s, it went into the snack food business. However, during the second half of the 20th century, Anheuser-Busch has grown in the brewing and entertainment business more than any other part of the company.

In 1995 the company elected to focus on its core businesses, beer and theme parks. With that decision made, it has eliminated the snack food business and the Cardinals baseball team and is dominant in four areas. It brews about 40 different beers and owns 10 theme parks. In addition, Anheuser-Busch is the second largest U.S. manufacturer of aluminum beverage containers and the largest recycler of aluminum drinking cans in the world.

When the U.S. Justice Department announced its investigation into Anheuser-Busch's distribution agreements, the price of the stock fell from the $45 range to about $40. The stock has recovered to some degree and is trading around $44. It has not, however, kept pace with the market.

The price earnings (P/E) ratio for Anheuser-Busch's stock is a little over 18. The average P/E ratio for stocks in the S&P 500 is near 26. If this stock were priced more like the average S&P stock, it would be trading around $63. My research indicates that $63 is only a dollar or so too high. From a value perspective, there is room for price improvement.

There are 19 broker analysts following this stock. Fifteen of them rate it as a hold, one a sell, one says buy and two give it a strong buy. It looks like any change in analyst recommendations will probably be toward the buy side. Anheuser-Busch seems to be a worthy candidate for value investors' long-term portfolios.

Dividend Reinvestment Plan: Yes

Web Site: http://budweiser.com

Bill Walker is president and CEO of Walkrich Investment Advisors and completes a market appraisal of over 5,000 common stocks each week. (573) 651-9196 (walkrich@mvp.net)

The Southeast Missourian does not recommend that readers buy or sell stock featured in this column, which is provided for informational purposes only.