Boston Beer (ticker: SAM) may have been hit hard when hard-seltzer sales faltered, but don’t count them out yet. Looking to the growth of the “beyond beer” category of alcoholic beverages, this beaten-up stock is ready to make a comeback this summer.
A Leader in Emerging Alcoholic Beverage Categories
Founded in 1984 by Jim Koch, who still serves as its chairman and controlling shareholder, Boston Beer has become an early entrant to emerging alcoholic beverage categories. Samuel Adams Boston Lager played a pivotal role in the craft beer revolution while Angry Orchard became the top-selling hard-cider brand in the U.S. Truly, which was launched well ahead of hard-seltzer offerings by competitors such as Anheuser-Busch InBev (BUD) and Constellation Brands (STZ), also enjoyed remarkable success.
From Hard Seltzer Hero to Humbled Stock
Truly enjoyed massive success during the Covid-19 pandemic that helped Boston Beer achieve a 70% increase in earnings, reaching $15.53 per share in 2020. Management had expected earnings of $22 to $26 in 2021 but instead only made $1.17 as the company was left with unsold perishable inventory and hard-seltzer sales underperformed. The company now expects hard-seltzer volumes to be down midteens percent this year.
Looking Beyond Beer
Boston Beer may have a market share of only around 5% in the 75% U.S. beer sales controlled by AB InBev and Molson Coors Beverage (TAP), but its share jumps up to around 25% in the one-fifth of beer volume classified as “beyond beer.” Over 84% of the company’s volume in 2022 will come from that category, with Truly taking up the biggest share.
Despite the hard seltzer boom fizzling out, Boston Beer has the potential to turn things around by banking on the “beyond beer” category’s continued growth.
Twisted Tea by Boston Beer: The Long View
CEO Dave Burwick says that this could be the year of Twisted Tea, a malt-based hard tea by Boston Beer. First introduced in 2001, the beverage has consistently grown sales every year and outperformed the past year due to new flavors, wider distribution, and attention from retailers. In fact, Twisted Tea is estimated to receive 45% more shelf space in stores this year.
Burwick notes that a similar product at a larger beer conglomerate might have been axed years ago, but Boston Beer’s culture of innovation and taking the long view allowed Twisted Tea to grow for two decades before becoming a mainstream hit. As the beverage is growing at a 30% clip, it is offsetting Truly’s declining volumes.
According to Roth MKM’s Bill Kirk, who recently upgraded Boston Beer’s stock to Buy, from Neutral, investors may appreciate Twisted Tea better should hard-seltzer sales stabilize. Additionally, there is an opportunity in Bud Light’s recent troubles, as light-beer drinkers may gravitate more towards hard seltzers this summer. With possibilities of Truly stabilizing thanks to Bud Light’s share loss and gross margins improving, Kirk lifted his price target for Boston Beer from $274 to $386.
E = estimate
Source: Bloomberg
Boston Beer Bounces Back
Boston Beer Company, the maker of Sam Adams beer and Truly Hard Seltzer, is rebounding after a tumultuous few years. The company has been hit hard by the boom and bust of the hard seltzer trend, but is taking steps to improve its operations and profit margins.
Improving Operations
The company is cutting overhead costs, saving on raw materials, and investing in automating its brewing and packing processes. New machinery in its Pennsylvania and Ohio breweries will save “multiple dollars” per case versus manual labor. Additionally, Boston Beer has hired a chief supply chain officer from Carlsberg to oversee its brewing operations. Management aims to achieve a 50% gross margin in three to five years, compared with 2022’s 41%.
Positive Outlook
Wall Street analysts are bullish on Boston Beer’s future. Despite an expected decline in revenue, earnings are projected to grow by 35% in 2023 to $7.32 per share. Analysts see earnings reaching $15.11 per share by 2026, close to the record set in 2020.
Show-Me Story
After a difficult period, Boston Beer is now a “show-me story”. The stock dropped 25% after a February 2022 recommendation by ‘s thought the worst was over. However, the stock has since rebounded and is trading at around 36 times forward earnings, close to the five-year average.
Defensive Potential
Boston Beer is also an attractive acquisition target for the industry’s heavyweights, with net cash on its balance sheet. Alcohol sales have historically held up well during recessions, providing a potential floor for the company’s stock.
Boston Beer’s Fridge Remains Well-Stocked
Boston Beer, the makers of the popular hard seltzer brand Truly, has seen a slowdown in sales growth recently. However, this doesn’t mean it’s time to write off the company just yet.
Despite the challenges, Boston Beer’s financials remain solid. The company has a strong balance sheet and earnings growth. Furthermore, it has a diverse portfolio of beer, hard cider, and other alcoholic beverages that are gaining momentum.
If you’re looking for a solid investment opportunity in the alcoholic beverage industry, Boston Beer is a great choice. The company’s stock is still trading at a discount compared to its peers, providing investors with an opportunity for potential upside.
In conclusion, while the hard seltzer bubble may have deflated, Boston Beer remains well-stocked and poised for continued success.
