Boston Beer Co. Inc. (SAM - Free Report) has been soaring up the charts, owing to the stringent focus on its three-point growth plan that sticks to the revival of Samuel Adams and Angry Orchard brands, cost savings and product innovation. Further, the company is advantageously positioned to capture a larger share in the craft beer space, given its robust craft beer portfolio.
This is clearly reflected in the stock’s bullish run on the bourses, which has taken its valuation multiples near a one-year high. Notably, this Boston, MA-based company has been outperforming the broader market (S&P 500) since August 2017. Looking more closely, this Zacks Rank #3 (Hold) stock has gained 43.1% in the last three months against the industry’s decline of 9.2%.
On the flip side, several new entrants in the lucrative craft beer market have significantly weighed on the depletions growth of the company’s flagship product — Samuel Adams Boston Lager beer, which has been persistently declining for three years.
Factors Supporting Growth
Boston Beer remains the largest premium craft brewer in the United States, commanding a strong portfolio of globally recognized brands. The company's continued focus on pricing and product innovation, and growth of non-beer categories, alongside brand development, is the key to driving operating performance and bolstering the market position.
Notably, the company banks on rising demand for new styles and flavors of craft beer as the vast Sam Adams (or Samuel Adams) beer portfolio has a lot to offer to consumers. Ongoing investments in breweries and tap rooms should further aid in recovering the lost shares due to rising competition. Evidently, product innovations, including the Sam ’76, Samuel Adams New England IPA and Angry Orchard Rose brands, received a positive response from customers which helped improve shipments and depletions in the first quarter of 2018. Continued optimism on these brands can help the company to stay competitive in the long run.
Additionally, innovation in non-beer categories, including hard teas, ciders and seltzer has been a hit among liquor drinkers, which should drive depletions growth. Notably, the company is looking to expand the distribution and customer base for the Twisted Tea brand as well as maintain the leadership position for the Truly Spiked & Sparkling brand in the emerging hard sparkling water category.
Further, Boston Beer is also making strides to address industry challenges through improved cost structure and re-investing these savings for the brand development. In fact, this has been significantly contributing toward improving the gross margin. In 2017, the company’s cost savings and efficiency projects delivered above the targeted ranges, providing increased flexibility to invest in brands, positioning it well for 2018.
Gross margin expanded 330 basis points in first-quarter 2018, driven by better pricing, product and package mix, and favorable fixed-cost absorption along with cost-saving gains from the company-owned breweries. For 2018, Boston Beer expects gross margins between 52% and 54%.
Further, Boston Beer’s balance sheet is reasonably healthy, indicating that its cash position should be able to fund strategic investments. Disciplined capital spending and ongoing cost-control programs indicate improving cash flow.
While these factors are raising optimism on the stock, we note that Boston Beer is at a risk of losing market share due to the entry of a horde of smaller craft brewers and increased options for drinkers at bars, restaurants, and liquor stores. Also, the introduction of larger 15-pack cases compared with the industry standard of 12-pack cases is building pricing pressure in the craft beer space. These larger packs come at a lower per-unit price, which might dent the company’s revenues and profits.
Nevertheless, we expect the company’s continued focus on pricing, product innovation and brand development to boost its operational performance, and position in the market. This is further supported by a long-term earnings growth rate of 9.5% and a Momentum Score of B.
Do Consumer Staples Stocks Grab Your Attention? Check These
Some better-ranked stocks in the Consumer Staples sector include Kirin Holdings Co. (KNBWY - Free Report) , Turning Point Brands, Inc. (TPB - Free Report) and Medifast, Inc. (MED - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Kirin Holdings has increased nearly 27.7% in the past year. The company has long-term earnings growth rate of 10%.
Turning Point Brands has rallied 122.8% in the past year. Additionally, the company delivered positive earnings surprise of nearly 16.7% in the last reported quarter.
Medifast has surged 68.2% in the last three months. Moreover, the company has long-term earnings growth rate of 15%.
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