Given his increasing conviction in the U.S. growth story following an investor seminar, Guggenheim analyst Laurent Grandet named Anheuser-Busch InBev (BUD) his sector Best Idea, replacing Coca-Cola (KO). The analyst also argued that he sees untapped "premiumization" opportunities and significant potential in emerging markets.

SECTOR BEST IDEA: In a research note to investors, Guggenheim's Grandet named AB InBev his sector Best Idea, replacing Coca-Cola, citing his increased conviction in its U.S. growth. Grandet left the company’s investor seminar more confident in the U.S. growth story driven by the mix shift to Michelob Ultra from Bud Light, a strong innovation pipeline and a "premiumization" across the portfolio, including growth of local craft brands. Further, the analyst said he now favors AB InBev given organic sales growth at the top of the peer range, leading EBITDA margins and the significant potential he sees in emerging markets. , 

While he expects AB InBev will face ongoing headwinds from commodities, freight, and foreign exchange rates, especially in South America and EMEA, the analyst continues to see positive momentum across the business. Additionally, Grandet argued that the shares remain “undervalued,” and reiterated a Buy rating and $103 price target on the stock.  

AB INBEV A 'POWERHOURSE,' CONSTELLATION 'ATTRACTIVE': In a research note titled "Should [Constellation Brands] be worried if [AB InBev] is getting its act together?," Evercore ISI analyst Robert Ottenstein noted that several beer industry veterans told him at the Beer Insights conference that AB InBev is "finally getting its act together." The analyst believes AB InBev will continue to take 1%-2% pricing and that Bud Light, Budweiser and Coors Light, will continue to fall mid-single digits. As his industry model suggests, these assumptions leave room for Constellation (STZ) to continue to deliver high mid-single digit volume growth and high-single digit sales growth, Ottenstein contended.

The analyst told investors that he continues to believe that Constellation Brands "looks attractive." Moreover, beer is a "momentum business" and the company has "most of the industry's momentum" in terms of absolute dollars, he added. However, Ottenstein acknowledged that AB InBev remains a powerhouse and there is "no way" the company is going to "roll over and play dead." He also does not believe that AB InBev is content to just run the U.S. for cash to fund debt pay down and other investments.

PRICE ACTION: In late morning trading, shares of AB InBev have gained about 1% to $81.73, while class A shares of Constellation Brands are fractionally down to $204.76.