A great first quarter for Ambev (ABV) up against some very tough year-to-year comparisons. Earnings per share grew by 24.7% and net sales by 8.2% in the first quarter, the company reported on May 5. Costs rose but the company still managed to show a 0.1 percentage point increase in companywide margins as the higher margin Brazilian business grew faster than operations in the rest of Latin America and Canada.
With the Brazilian stock market facing strong headwinds in 2010 from the Banco Central do Brazil’s decision to raise interest rates to fight inflation, I would be tempted to sell these shares and sit the year out—except that Ambev is very likely to lift the cap on dividends it imposed in 2009 to increase its debt repayments.
Cash from operations grew in the quarter by 26.1% from the first quarter of 2009. The company has already announced one dividend payment and it looks like the company is on a path that would produce a dividend yield of about 5%.
The one thing that might disrupt that dividend scenario is an acquisition of Mexican beer company Grupo Modelo. I think that acquisition would be a good long-term move for Ambev since it would increase the company’s presence in the Mexican market and put pressure on competitors, but it could well postpone the increase in the near-term payout.
 As of May 17, I’m leaving my target price at $118 by October 2010.
 Full disclosure: I own shares of AmBev in my personal portfolio.
Jim,
Is there going to be quarterly update on your stock picks any time soon? It seems that there has not been an update for several quarters.
Did anyone see 60 Minutes on the BP/RIG disaster last night?
It sure painted an ugly picture of BP and a relatively better picture of RIG. Other than getting bullied into accelerating the rate of drilling by the BP rep on the Horizon, I thought RIG came off as a pretty responsible company with a stellar safety record.
It didn’t make me want to dabble in BP but I’m getting itchy fingered on RIG. It and NE seem incredibly cheap. TIme to nibble?
I vote for an update on TC too.
Thanks Jim.
Yes, please; I too would like to read your thoughts regarding TC & MXWL. GG, too. Thanks, Jim!
I too would like an update on maxwell technologies.
For those of you interested in economic indicators, check out the Ceridian Index, which is based on truckers diesal consumption:
http://www.ceridianindex.com/
Supposedly, it correlates well to industrial production. If so, expect April’s numbers to show a slight drop in industrial production.
Thompson Creek and RIG for my part. It’s getting hard to see much growth in the molybdenum industry in the intermediate term if plane shipments stay so far behind schedule – so TC looks ugly, unless you see something I don’t. As for RIG…what a mess! Forget about what the insurance companies pay for – this is massive infrastructure loss, which may well eat up profits for years to come…
Yes, those two don’t look good.
please give us an update on thompson creek and maxwelll jim