Anheuser-Busch company thriving
Anheuser-Busch Cos. Inc. (BUD) met earnings estimates of 43 cents per share on Wednesday, up 13 percent from last year. The company has consistently reported double digit earnings and controls 49 percent of the domestic beer market.
Marc Greenberg, an analyst from Deutsche Banc Alex. Brown, sees Busch as a choice stock pick. The stock is currently trading at around $40 a share because of an overall devaluation of stock prices, but Greenberg placed a 12-month target price of $55 a share for Busch.
Greenberg sees the company's success as a result of its domination of the domestic market. He conducted his own survey of 130 New York City bars and 1,300 beer taps, and found that, together, Budweiser and Bud Light control 50 percent of the domestic brand market.
Andrew Conway, an analyst at Morgan Stanley Dean Witter, agreed that Busch is an undervalued stock, but places his own 12-month target of $50 a share for the company. His reasoning, he says, is that consumers are switching to light beers, and Bud Light has a great market share for light beers. Although Busch is growing at a rate of two percent, which is two times the rate of the rest of the industry, that rate is still small.
Economic indicators show mixed results
Reports from a number of key economic sectors for March were released this week. Among these, economists were most surprised by promising results in home sales indicators.New home sales rose 4.2 percent, to a record 1.021 million annual rate, while re-sales of existing homes jumped 4.8 percent to a rate of 5.44 million, the second highest on record. The market expected an increase of 5.1 million re-sales, and 9.1 million new home purchases.
Economists attributed these outstanding numbers to low mortgage rates caused by the Fed's interest rate cuts. This is a good sign for consumer demand, economists say, as new homeowners furnish their homes.
Not all indicators are as promising, however. Orders for durable goods in March rose three percent, though economists had expected a growth rate of only 0.5 percent. This growth was mainly due to transportation orders, which have a tendency to fluctuate. Excluding transportation orders, orders for durable goods fell by 1.8 percent.
"What we have here is a situation where the manufacturing sector continues to be in a recession, while the housing sector continues to avoid a recession," said Robert Dederick, an economic consultant with The Northern Trust Co. in Chicago.
Moreover, consumer confidence plummeted from 116.9 to 109.2, suggesting further downturns in the economy.
Market on rise this week
There was a general rise in stock prices this week, due in part to the Fed interest rates cut. A number of companies reported earnings in line with analysts' expectations - with some companies exceeding estimates - which came as a surprise and further boosted the market.Stock prices rose on Thursday after positive news came down from telecommunications giant Worldcom Inc. (WCOM). Worldcom, which currently ranks number two in the long distance market, not only met expectations, but agreed with analysts' estimates for the remainder of the year. This is abnormal in a market in which telecom giants are by and large cutting their earnings estimates for the rest of the year.
"It's rare to see a positive outlook," said Barry Hyman, chief investment strategist at Ehrenkrantz King Nussbaum. "A lot of today's behavior is based on some of the good stories that we've seen, led by the Worldcom comment."
Stocks are also riding on the hope of future support from the Federal Reserve, which will convene on May 15. Many analysts are predicting another cut in rates because of unexpectedly high initial claims, which are up to their highest level in five years.
For now, economists are re-evaluating their positions on the stock market. "There are a lot of disbelievers, but people are saying you are getting to a point where they are looking at percentage gains and realizing they are under invested," said Timothy Woolston, a fund manager for Boston Advisors.
