Going into Earnings, is Heineken a Buy, Sell, or Hold?

Like its consumer peers, Heineken suffers from volume declines that can be offset with price rises, but that tactic only does so much

Robert van den Oever 12 februari, 2024 | 12:23
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Will Heineken (HEIA) revive growth? That is the main question investors are focused on ahead of the beer giant's earnings this week.

Several quarters of declining beer volume sales have been offset with price increases, but through 2023 consumers began to complain about inflation.

The good news is that, looking back into 2023, volume declines lessened somewhat in the third quarter of the year (4.5% vs 6.6% in the first half of 2023). Nevertheless, overall revenue growth slowed because Heineken had to back down on price increases.

Will Heineken bottle it? In Europe beer volumes have been declining for a long time, by 6.5% in the third quarter of 2023, despite double-digit price increases. Other mature markets saw declines too, such as the Americas, which includes the US, where volumes were down by 5.8%. 

Heineken's net profit for the first nine months of 2023 declined by 12.5% to €1.9 billion (£1.6 billion), affected by a write-down on the business in Russia which Heineken has exited. Nevertheless, Morningstar analysts say the company is undervalued. 

What is Heineken's Business Strategy?

Heineken's strategy to pursue higher pricing and rising profit margins is based on "premiumisation". That means drinks with a more sophisticated brand image can justify higher prices and therefore bigger margins. 

In growth markets like Asia and South America there is still plenty of room for premiumisation. And there is not always a need for developing new products. For example, the namesake Heineken brand is considered mainstream in its Dutch homemarket, but elsewhere, such as the United States, it is considered a premium brand with a premium price tag. But the the taste is no different.

Morningstar-analyst Philip Gorham expects inflation-driven price increases to ease in the fourth quater of 2023, supporting a pick-up in volumes. That would result in volume stabilisation in 2024 and a low single-digit growth in 2025.

Key Morningstar Metrics for Heineken Stock

• Fair Value Estimate: €96,00 
• Current Share Price: €93,75
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium

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Over de auteur

Robert van den Oever  Robert van den Oever is research editor bij Morningstar in Amsterdam

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