Back to top

Bear of the Day: The Boston Beer Company (SAM)

Read MoreHide Full Article

The Boston Beer Company (SAM - Free Report) is a Zacks Rank #5 (Strong Sell) that is one of the largest craft brewers in the United States. The company produces beer, malt beverages, and cider products at company-owned breweries and under contract.

SAM products include popular brands such as Sam Adams Boston Lager, Dogfish Head, Truly, Twisted Tea, Angry Orchard and more.

The stock had a crazy run since COVID, moving from the $400 area to a high of $1349. This 200% plus move stemmed from people drinking more during the pandemic, for whatever reason. Additionally, the Truly brands took off, seeing triple digit volume growth in 2020.

However, the stock has run into valuation issues and the technicals have broken down. Despite a pullback from all-time highs, investors are questioning if the company can match the performance from last year.

More about SAM

Boston Beer was founded in 1984 and is headquartered in Boston, MA. The company markets and sells its products to a network of approximately 400 wholesalers in the U.S. and internationally. The company also employs over 2400 people and has a market cap of $11 billion.

The stock has a PE of 40, which when compared to others in the sector is a bit high. Valuation has become the issue here, which is why the stock has a Zacks Style Score of “D” in Value. However, the stock is rated “B” in Growth, which is stems from the growth in Truly, Twisted Tea and some other brands.  

Q1 Earnings

In late April, Boston Beer reported a big EPS beat of 91%. They crushed the top line and raised their FY21 guide to $22-26.00 v the $22.32 expected. The company also affirmed gross margins at 45-47% and cut capex.

The company commented that they continue to release new hard seltzer products and believe the innovation in the market will lead to long-term sustainable growth.

It was a pretty good quarter, but the stock topped out after the report and has since fallen over 30%. Part of the reason was the good news was priced in, but the other reason is estimates are falling across the board.

Estimates

COVID was a tailwind for anyone selling alcohol and that is about to end as the pandemic fades. Looking at estimates, we see a drop over the last 7 days across all time frames. For the current quarter, we see a fall from $7.38 to $7.00, or 5%. For the current year, estimates have dropped almost 4%. With the numbers falling, valuation has to come into play and investors have adjusted, by taking the stock below important technical levels.

 

 

The Technicals

The stock has bled lower since the earnings report. After trying to hold the 200-day at the $1000 level the bulls gave up and the stock dropped another 10%. Although the stock seems overdone, $815 is the halfway back mark from the COVID lows and $690 is the 61.8% Fibonacci retracement. Investors might want to be more patient and wait for these levels to come into play.

In Summary

Boston beer saw its business take off during the pandemic. Now with COVID fading away, sales might be slowing outside of the fast-growing brands. Investors have taken caution, selling on valuation concerns. However, there might be some room lower for the stock to go.

The next catalyst will be the earnings report due out July 22nd.  For those interested in the beer space, Heineken (HEINY - Free Report) might be a better bet. This company is seeing estimates trend higher for the current year and is a Zacks Rank #2 (Buy).
 


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


The Boston Beer Company, Inc. (SAM) - free report >>

Heineken NV (HEINY) - free report >>