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Can Molson Coors' (TAP) Rally Continue Amid Headwinds?
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Molson Coors Brewing Company (TAP - Free Report) has been enjoying a bullish run on the index over the past one year. We noted that in the said period the stock has jumped 8.15% as against the Zacks categorized Beverages-Alcoholic Market industry’s decline of 4.1%. We believe there is still room for further upside, which is quite evident from its low beta of 0.92 and long-term earnings growth rate of 7.6%.
However, estimate revisions tell a different story. The Zacks Consensus Estimate for 2016 and 2017 declined a respective 0.6% to $3.32 and 3.1% to $5.58 over the past 30 days. Estimates for the fourth quarter of 2016 have also declined 26.6% over the same time frame.
Estimates have been declining since Molson Coors reported third quarter 2016 results, wherein earnings beat expectations but revenues lagged the same. Earnings of $1.03 per share declined 26.4% year over year due to lower revenues, higher tax rate, and higher brand investments, which were partially offset by a positive mix and higher underlying U.S. equity income. Sales declined 6.9% due to a difficult economy, currency headwinds and competitive pressure.
We note that the company has been struggling with weak sales volume trends since the past many years. In Canada, the premium beer segment has been gradually losing volume to the above premium and value segments since 2001. An aging population, a stalled economy and strong competition from other alcohol beverages have been the main contributors to the declining state of the beer industry. The termination of the Modelo brands agreement in Canada in Feb 2014 also resulted in volume decline. In the U.S., the company witnessed declines due to poor economic conditions and challenging industry.
In Europe too, the company has seen volume declines since 2013, as volumes continue to shift from the higher margin on-premise channel to the lower margin off-premise channel. The loss of the Modelo brands in the U.K. in 2015 also resulted in lower volume.
Though the company reported volume growth in the first quarter of 2016 with gains in Coors Light worldwide; volumes declined in the next two quarters. In fact, the company remains apprehensive about the fourth quarter as well. Molson Coors expects lower net pension benefit in Europe to hurt results in the fourth quarter. Total alcohol prohibition in Bihar, India has created a headwind in the international business since its implementation in Apr 2016 and the company continues to address this within its business. Foreign currency translation will pose a headwind of approximately $8 million to the underlying pre-tax results in the fourth quarter this year, with all of the impact in Europe.
Nevertheless, we believe the concerns are short term and therefore leave space for this Zacks Rank #3 (Hold) company to rebound in the long run. The company remains optimistic on its cost savings initiatives and increased marketing investments that are expected to drive profits. The recent acquisition of 58% stake in MillerCoors is encouraging, as this will enable Molson Coors to improve its scale, gain significant synergies and allow it to cut costs quickly. The deal makes Molson Coors the largest brewery in the U.S. and the third largest in the world, after Belgium-based Anheuser-Busch InBev and Dutch brewer Heineken NV.
We expect the aforementioned factors to help the company sustain its strong momentum and stay afloat even amid difficult times. Hence, we suggest investors to hold on to the stock as the rest is a wait-and-watch story.
Sysco has an expected earnings growth rate of 8.8%. Further, it has delivered positive earnings surprises in the trailing four quarters, leading to an average earnings surprise of 11.7%. While Lancaster Colony has an expected earnings growth rate of 3.00%, Ingredion has a growth rate of 11.0%.
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Can Molson Coors' (TAP) Rally Continue Amid Headwinds?
Molson Coors Brewing Company (TAP - Free Report) has been enjoying a bullish run on the index over the past one year. We noted that in the said period the stock has jumped 8.15% as against the Zacks categorized Beverages-Alcoholic Market industry’s decline of 4.1%. We believe there is still room for further upside, which is quite evident from its low beta of 0.92 and long-term earnings growth rate of 7.6%.
However, estimate revisions tell a different story. The Zacks Consensus Estimate for 2016 and 2017 declined a respective 0.6% to $3.32 and 3.1% to $5.58 over the past 30 days. Estimates for the fourth quarter of 2016 have also declined 26.6% over the same time frame.
Estimates have been declining since Molson Coors reported third quarter 2016 results, wherein earnings beat expectations but revenues lagged the same. Earnings of $1.03 per share declined 26.4% year over year due to lower revenues, higher tax rate, and higher brand investments, which were partially offset by a positive mix and higher underlying U.S. equity income. Sales declined 6.9% due to a difficult economy, currency headwinds and competitive pressure.
MOLSON COORS-B Price, Consensus and EPS Surprise
MOLSON COORS-B Price, Consensus and EPS Surprise | MOLSON COORS-B Quote
Factors Impacting the Company
We note that the company has been struggling with weak sales volume trends since the past many years. In Canada, the premium beer segment has been gradually losing volume to the above premium and value segments since 2001. An aging population, a stalled economy and strong competition from other alcohol beverages have been the main contributors to the declining state of the beer industry. The termination of the Modelo brands agreement in Canada in Feb 2014 also resulted in volume decline. In the U.S., the company witnessed declines due to poor economic conditions and challenging industry.
In Europe too, the company has seen volume declines since 2013, as volumes continue to shift from the higher margin on-premise channel to the lower margin off-premise channel. The loss of the Modelo brands in the U.K. in 2015 also resulted in lower volume.
Though the company reported volume growth in the first quarter of 2016 with gains in Coors Light worldwide; volumes declined in the next two quarters. In fact, the company remains apprehensive about the fourth quarter as well. Molson Coors expects lower net pension benefit in Europe to hurt results in the fourth quarter. Total alcohol prohibition in Bihar, India has created a headwind in the international business since its implementation in Apr 2016 and the company continues to address this within its business. Foreign currency translation will pose a headwind of approximately $8 million to the underlying pre-tax results in the fourth quarter this year, with all of the impact in Europe.
Nevertheless, we believe the concerns are short term and therefore leave space for this Zacks Rank #3 (Hold) company to rebound in the long run. The company remains optimistic on its cost savings initiatives and increased marketing investments that are expected to drive profits. The recent acquisition of 58% stake in MillerCoors is encouraging, as this will enable Molson Coors to improve its scale, gain significant synergies and allow it to cut costs quickly. The deal makes Molson Coors the largest brewery in the U.S. and the third largest in the world, after Belgium-based Anheuser-Busch InBev and Dutch brewer Heineken NV.
We expect the aforementioned factors to help the company sustain its strong momentum and stay afloat even amid difficult times. Hence, we suggest investors to hold on to the stock as the rest is a wait-and-watch story.
Stocks to Consider
Some better-ranked stocks in the broader consumer staples sector include Sysco Corp. (SYY - Free Report) , Ingredion, Inc. (INGR - Free Report) and Lancaster Colony Corporation (LANC - Free Report) . All of them carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Sysco has an expected earnings growth rate of 8.8%. Further, it has delivered positive earnings surprises in the trailing four quarters, leading to an average earnings surprise of 11.7%. While Lancaster Colony has an expected earnings growth rate of 3.00%, Ingredion has a growth rate of 11.0%.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>