BUD Reaches Target, Now a Hold

Anheuser-Busch Companies, Inc. (BUD) is benefiting from industry consolidation of production and a growing international beer presence from the management's astute acquisition strategy. The company has received an unsolicited buyout proposal for $65 per share in cash. The stock has rallied to our target; therefore, the recommendation has been lowered to a Hold.Though there are concerns about higher commodity costs, especially energy, agricultural, and packaging costs, the results year-to-date demonstrate the management's ability to implement productivity programs to offset the negative inflationary effects. The beer industry's pricing environment remains favorable.

The competitive environment in the U.S. is likely to remain intense, thereby compelling the company to pursue a high level of promotional initiatives. The company's business is seasonal, with approximately 55 percent of the revenues generated in the warm weather months of April through September. Thus, an unseasonably cool and/or wet summer throughout the U.S. and Canada could negatively impact sales.

Anheuser-Busch stock has traded in a P/E range of 16 to 27 over the last five years. At the current P/E of 21.5, the stock is in the middle of its historical trading range. The target of $65 is based on a 23 P/E on trailing 12 month earnings.

CPFL Energia a Strong Brazil Play

We rate CPFL Energia (CPL), the largest private company in the Brazilian electricity sector, as a Buy. The company posted solid results for the first quarter and the outlook for the following quarters remain positive, mainly considering the growing demand for electricity in Brazil and the positive outlook for the Brazilian economic environment.

We also believe that the tariff correction in 2009 will be quite positive. Finally, CPL has a solid dividend payout and an attractive valuation.

According to ANEEL (Brazilian Government Agency for electric utilities), the demand for electricity in Brazil is expected to increase by 4.5% on an average in the upcoming years. We find this estimate as conservative, since the potential for growth seems to be quite higher. Only in the first quarter of 2008 sales within the company's concession area increased by 8.1% year over year.

Additionally, the company paid dividend of US$413 million. In spite of having unsustainable dividend yield currently, the company has very aggressive dividend policy that establishes a minimum payoff of at least 50% of its half yearly net income in the form of dividends and/or interest on own capital.

At current levels, CPL's ADRs are trading at 11.1x our 2008 earnings estimates, well below the industry average. But the recent upgrade of Brazil to investment grade by Standard & Poor's and by Fitch and the tariff correction in 2009 will be very encouraging.