Dutch brewer Heineken, the fastest-growing premium brand in the industry, has limited exposure to the U.S. and trade wars. By Teresa Rivas

The stock market is still trying to recover from a tariff hangover. Heineken might be a hair-of-the-dog solution.

Netherlands-based Heineken is the world's second-largest brewer after Anheuser-Busch InBev. It has operations in more than 70 countries and, along with its eponymous beer, owns popular brands like Amstel, Dos Equis, Lagunitas, Red Stripe, and Tiger. It also gets less than a third of its business from the U.S. -- good news at a time when Americans are drinking less and a potential trade war has clouded the picture.

All of that adds up to a recipe for broad-based, ongoing earnings strength, even in the face of an economic downturn.

"With all the back and forth on tariffs, one outcome is that people are going to be a lot more interested in European investments as they look outside the U.S. for opportunities," says Brian Krawez, president and lead portfolio manager at Scharf Investments. "Heineken has very little exposure to the U.S., and it's trading cheaply compared to where it has historically, even though we believe it still has decent growth going forward."

He also likes the fact that some 40% of the company's sales come from premium brands in developed markets that have strong pricing power. The Heineken brand itself is the fastest-growing premium brand in the industry.

Although surveys show that in the U.S., Gen Z and younger millennials are drinking less than prior generations, that is somewhat offset by older drinkers, so it will take time for demographics to turn against alcohol. Heineken is also pushing into new categories like low-alcohol and nonalcoholic beverages, which are growing double digits; its Heineken 0.0 was one of the first major brands in the space.

Morgan Stanley analyst Sarah Simon recently noted that she preferred brewers to spirits makers, given that "beer is better positioned in the context of moderation trends," as evidenced by increasingly popular low-alcohol and nonalcoholic brews. (Zero-proof liquors exist, too, but are a smaller market.)

Heineken's growing emerging markets business, which accounts for nearly two-thirds of its profits, can shine as well, given that many are seeing rising alcohol consumption trends that are likely to hold up relatively well throughout economic cycles.

"I think it is the best-traveling beer brand there is in the world," says Roger de Bree, managing director of Tweedy Browne. "In emerging markets, alcohol is a relatively low-ticket way to feel good about yourself in good times and bad. It's a lot cheaper than a BMW."

Investors may be concerned about Heineken's ability to navigate a global economy burdened with a trade war. Yet even if one materializes, it's worth noting that management has handled worse in recent years. Although the pandemic weighed on profits, Heineken's 2021 earnings per share had already rebounded to nearly 85% of its 2019 levels; by 2022, it had already surpassed prepandemic earnings. The founding family also remains heavily involved in the businesses, which research has found is beneficial for shareholders.

Nor do Heineken's American depositary receipts, which trade under the ticker HEINY, look very pricey. They change hands for 15.4 times forward earnings, compared to a five-year average of close to 20 times. (There are also ADRs for Heineken Holding, which is a separate stock more closely linked to the controlling family.) Heineken also stands at less than 10 times enterprise value to earnings before interest, taxes, depreciation, and amortization, or Ebitda. That's a discount to its own history and the midteens EV/Ebitda of SABMiller when it was acquired by AB InBev.

In April, Heineken delivered upbeat organic volume and revenue updates for its first quarter, and maintained its full-year fiscal 2025 guidance, despite currency headwinds and the unknown fallout from tariffs, which caused peer Diageo to withdraw its forecast.

De Bree argues that Heineken has been underearning in the postpandemic period. "You have heavy investments in the brands, heavy cost-cutting, relentless growth of your premium product, and premiumization. I've been sitting here for two years thinking the profits will explode sometime -- not that they need to."

Indeed, consensus already calls for Heineken to report EPS of $2.80 this year, a nearly 10% increase, and another 9% jump next year. The average analyst price target just over $52 implies more than 15% upside from Tuesday's close of $44.15.

That said, Heineken isn't without risk. Along with fluctuations in foreign-exchange rates, which the company noted was a headwind, the company's premium brands could see slower growth in a recessionary environment in which people trade down.

Still, there are a lot of hopeful signs: The company has been bringing down its net-debt-to-Ebitda ratio, which is now below its five-year average; analysts have been tweaking their 2025 and 2026 EPS estimates higher in recent months; and Heineken has been actively buying back shares.

"If we could own more stocks like this, we would," says de Bree.

We'll drink to that.

Write to Teresa Rivas at teresa.rivas@barrons.com

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May 02, 2025 21:30 ET (01:30 GMT)

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