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Bull of the Day: The Boston Beer Company, Inc. (SAM)

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The Boston Beer Company (SAM - Free Report) has been part of the vanguard of two different revolutions in the alcoholic beverage market. The newest one has helped drive its recent growth and fuel SAM’s stock price over the last several years. Boston Beer’s outlook remains strong and SAM shares rest about 10% below their October records.

Leading a Revolution…

Samuel Adams started in the mid-1980s and became one of the founding fathers of the craft beer revolution in the U.S. The craft market is as crowded as ever today, and Boston Beer is certainly on the mainstream side, but it has expanded its portfolio and acquired other brands such as Dogfish Head Brewery.

Starting in the year 2000, SAM consistently grew its revenue by roughly 10% to 25% for the better part of 15 years, with a few down years and downturns mixed in. Then it posted back-to-back sales declines of around 5% in fiscal 2016 and 2017. SAM stock suffered alongside its sales during that stretch.

SAM soon turned things around as it helped popularize what the company’s founder has called the biggest thing since light beer: hard seltzer. Boston Beer launched Truly Hard Seltzer in 2016 and it was one of the first real players in the now-booming space alongside White Claw, which is owned by Mike's Hard Lemonade maker Mark Anthony Brands.

 

 

 

 

 

 

 

 

 

 

 

 

Truly’s success and the continued growth of the hard seltzer market has forced all of the industry giants such as Anheuser-Busch InBev (BUD - Free Report) , Molson Coors (TAP - Free Report) , and Constellation Brands (STZ - Free Report) to jump headfirst into the market. All three have rolled out seltzer offerings under their flagship brands such as Bud Light and Coors.

In fact, the market is so hot and offers so much growth potential that Coca-Cola (KO - Free Report) is set to enter under its Topo Chico brand in 2021. Investors should note that this will be Coca-Cola’s first alcoholic beverage in the U.S. since it sold its wine business nearly 40 years ago.

Truly is the No. 2 player in a market—behind White Claw—that saw Americans spend over $3 billion in U.S. retail stores over the 12-month period ended in July, which marked 241% growth. Looking ahead, reports project that the global hard seltzer market could reach $14.5 billion by 2027, expanding at a CAGR of over 16%.

What Else…

Boston Beer’s revenue jumped by 15% in 2018 and 26% in FY19, after it slipped in FY17 and FY16. The company’s sales then surged by at least 30% in the first three quarters of 2020. “The growth of the Truly brand, led by Truly Lemonade Hard Seltzer, continues to be very strong and we expect the Truly brand to continue to lead the growth of the business into 2021,” CEO Dave Burwick said in prepared Q3 remarks.

“In early 2021, we will launch Truly Iced Tea Hard Seltzer, Truly Extra, a higher ABV version of Truly, and other new Truly flavors and package sizes, as we continue to lead innovation in the Hard Seltzer category.”

 

 

 

 

 

 

 

 

 

 

 

Zacks estimates call for SAM’s revenue to surge by a whopping 50% in both the fourth quarter of this year and the first quarter of FY21. Its adjusted earnings are projected to climb by 146% and 154%, respectively over this same stretch.

More broadly, Boston Beer’s 2020 revenue is projected to jump 39% to reach $1.73 billion and then climb another 32% in FY21 to hit $2.29 billion. Both of these would represent SAM’s strongest growth as a public firm, easily topping 2013’s 27% sales expansion.

The company’s recent growth and its outlook has seen Wall Street drink up SAM shares. The stock has climbed 160% in the last year and 400% in the past three. This has helped the stock crush its industry’s 14% decline and the S&P 500’s 40% run. Luckily for investors, the stock has cooled off a bit recently, which seemed very needed.

SAM’s price tag of roughly $956 a share might cause some sticker shock. But it currently trades 10% below its October highs even though it’s up 5% in the last month. The stock also trades at a big discount compared to its industry at 5.2X forward 12-month sales vs. 19.9X, despite its outperformance. SAM’s not too far off from the S&P 500’s 4.3X and it rests 20% below its own year-long highs.

 

 

 

 

 

 

 

 

 

 

 

Bottom Line

The nearby chart shows us that its FY20 and FY22 EPS estimates are up 21%. These positive bottom-line trends help Boston Beer earn a Zacks Rank #1 (Strong Buy) right now. SAM also grabs an “A” grade for Growth in our Style Scores system and its industry rests in the top 25% of over 250 Zacks industries. It’s also worth noting that four of the eight brokerage recommendations Zacks has for SAM come in at a “Strong Buy” with one more at a “Buy.”

All that said, some investors might want to consider taking a few sips of Boston Beer stock, especially since the hard seltzer revolution is still in its early days. And the firm’s ability to grow during these tough economic conditions is impressive and helps further its bullish case

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