Boston Beer Valuation Concerns Grow with Earnings

Beer Taps
Beer Taps

The world of beer stocks is not that large any longer, and there really are not enough players to evaluate as a real public investable sector. Boston Beer Co. Inc. (NYSE: SAM) has grown and grown, and its sales gains have been impressive. After the company's latest earnings report, we cannot help but wonder if it is time for this train to take a serious rest.

The beer maker's earnings fell by about $900,000 in its latest quarter, and earnings were reported as $1.25 per share. The company said that this drop was mainly from a favorable state income tax settlement in the 2011 fourth quarter of $0.16 per diluted share, as well as due the loss of one week as last year's same quarter had an extra week. Net revenue for the fourth quarter was up about 8% year-over-year to $153.0 million. Shipments rose 9% in the last quarter, but promotional costs were up 8%.

With Anheuser-Busch InBev S.A./N.V.(NYSE: BUD) dominating the news and Molson Coors Brewing Co. (NYSE: TAP) taking on so much of the larger beer stage, we cannot help but notice that Boston Beer's run up in the stock has been both fierce and volatile.

The company is targeting depletion growth of 10% to 15% for all of 2013, and it put earnings in a range of $4.70 to $5.10 per share for the full year ahead. At a closing price of $152.94, this represents a forward earnings multiple of 31 times expected earnings at the mid-point of guidance, and it represents 30 times earnings at the high-end of the company's guidance. Its guidance of full-year 2013 gross margins of between 53% and 55% includes 1% to 2% price hikes that are not expected to fully cover cost pressures and some product mix changes.

There are a couple of issues we would take away here, and they are really concerns rather than strengths. Boston Beer brewed and sold more than 50 distinct styles of Samuel Adams beers during 2012, and it is continuing to go after more new beers ahead. The Twisted Tea and Angry Orchard were strengths, but the company noted that these offset some slight decline in some of its other Samuel Adams brand styles. The company warned of higher promotional costs ahead as well and said, "We are prepared to forsake the lost earnings that may result from these investments in the short term as we pursue long term profitable growth." It also said that its Freshest Beer Program did not meet its goals in 2012.

A last concern is that Boston Beer stock put in a new all-time high of $162.31 on Wednesday but a mere 100-point sell-off in the DJIA helped take shares down to close at $152.94. That is almost $10 off the stock in one day. Shares are also down more than $4 more after the open on Thursday at $149.25. The 52-week trading range is $94.24 to $162.31.

Note that there was a huge gap-up here in December, taking the stock price from $114 to more than $130. Valuation concerns have to be catching up here, now or soon. Earnings growth is projected to be close to 15%, with sales growth projected to be about 13%, according to Thomson Reuters in 2013.

For a comparison, Anheuser-Busch trades at close to 19 times expected 2013 earnings and Molson Coors trades at only about 11 times expected 2013 earnings. There are of course different growth rates, and the notion that Boston Beer is worth just under $2 billion. That being said, we have a hard time justifying the current valuation here.

Filed under: 24/7 Wall St. Wire, Consumer Goods, Consumer Product, Earnings, Earnings Warning, Retail Tagged: BUD, SAM, TAP