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

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The Boston Beer Company, Inc. (SAM - Free Report) went on an insane roughly three-year run driven by the hard seltzer boom. Wall Street poured into the stock as its Truly brand flew off the shelves. But the craft beer staple and hard seltzer star became a victim of its own outsized success and growth.

SAM fell well short of Q2 earnings estimates on July 22 and disappointing guidance has helped send the stock plummeting.

The Boston Beer Basics

Boston Beer was at the forefront of the American craft beer revolution for decades. SAM then launched Truly Hard Seltzer in 2016 and helped kickstart the biggest alcoholic beverage trend since light beer.

Truly has been one of two dominant players in the category, alongside White Claw. Truly and hard seltzer’s expansion forced Anheuser-Busch InBev (BUD - Free Report) , Molson Coors (TAP - Free Report) , Constellation Brands (STZ - Free Report) , and even Coca-Cola (KO - Free Report) , under its Topo Chico brand, to enter the hard seltzer market.

Boston Beer’s revenue surged 15% in fiscal 2018, another 26% in FY19, and 39% last year. The last three years were SAM’s strongest top-line growth since 2014. In fact, Boston Beer had never posted 30% or stronger revenue growth since it went public in the late 1990s until 2020.

Zacks Investment Research
Image Source: Zacks Investment Research

SAM still posted 33% sales expansion in the second quarter, while its earnings dipped slightly. Along with the decline in EPS, the company missed our Zacks consensus estimate by 33% and its bottom-line guidance was disappointing.

The nearby chart showcases how far its adjusted fiscal 2021 and 2022 consensus earnings estimates have fallen since its report. Both estimates are 26% lower compared to where they were 60 days ago.  

“We overestimated the growth of the hard-seltzer category in the second quarter and the demand for Truly, which negatively impacted our volume and earnings for the quarter and our estimates for the remainder of the year,” CEO David Burwick said on a Q2 earnings call. “Our outlook for the hard-seltzer category in the second half of 2021 is uncertain”

Bottom Line

Boston Beer’s downward earnings revisions help it land a Zacks Rank #5 (Strong Sell) right now. The stock also lands “D” grades for Growth and Value in our Style Scores system and its Beverages – Alcohol space is in the bottom 16% of over 250 Zacks industries at the moment.

SAM shares have plummeted over 55% from their mid-April records to hover where they were around last June. The bottom has fallen out of the stock relatively quickly and it is trading way below its 200-day and 50-day moving averages. Boston Beer stock has also hovered well below oversold RSI levels for over a month now and it’s likely best to stay away from SAM until it shows some signs of recovery.

That said, Boston Beer’s revenue and earnings are still projected to expand at impressive clips this year and next. But clearly Wall Street decided the stock had come too far too fast, and its drop could get worse.