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Molson Coors (TAP) Shows Resilience: Stock to Surge in 2019?

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Molson Coors Brewing Company (TAP - Free Report) is among the few stocks that have shown resilience despite softness in the U.S. beer market. Though tough industry conditions — owing to consumers’ changing preferences, aging population and strong competition — have been hurting beer volume in the United States, the company has managed to put up strong top and bottom-line performances. This strength mainly comes from its focus on cost savings and premiumization of its portfolio.

While the Molson Coors stock dipped 8.4% in the last three months, it significantly outperformed the industry’s decline of 15.7%. The soft industry performance clearly reflects the ongoing turmoil in the alcohol space due to consumers shifting to healthy drinks and wines, which is particularly hitting the beer makers hard. Amid such backdrop, Molson Coors’ recent performance surely reflects its ability to steer through this turmoil.



Let’s get a closer look at the factors that position Molson Coors for a strong year ahead.

Molson Coors is one of the largest brewers in the world and boasts a strong portfolio of well-established brands. As already mentioned, the company’s focus on premiumization and cost savings has been significantly aiding its performance. In fact, it remains committed to growing its market share through innovation and premiumization.

In the third quarter of 2018, Molson Coors’ above-premium brands portfolio constituted about 21% of its total portfolio. Further, the above-premium brands rose 3.6% in the quarter, driven by its craft brands, Peroni and Sol in particular, along with Arnold Palmer Spiked and Henry's Hard Sparkling.

Further, management has long been focused on gaining share in the Premium Light segment in the United States through Coors Light and Miller Lite brands as the demand for premium beer is growing. Notably, it witnessed improved trends on a sequential basis in Premium Light, primarily backed by robust performance of Miller Lite. Molson Coors remains on track to witness continued segment share gains in premium brands, increase in volume in above-premium brands, and bring stability to its below-premium brands’ volumes and market share.

Additionally, the company’s restructuring initiatives to reduce overhead costs and boost profitability bode well. These included closure of underperforming breweries, improving efficiencies in finance, administration and human resources, and reducing labor and general overhead costs. These cost-saving efforts are likely to help the company expand EBITDA margin by offsetting higher commodity inflation costs.

The company is also focused on initiatives to improve its supply-chain network and build on efficiencies across the business to generate additional resources to invest in brand building and innovation. This, along with its First Choice plan, should significantly aid performance. The First Choice strategy aims at solidifying and preimmunizing portfolio, enhancing customer relations, and generating significant profits from international businesses through improved capability, productivity and continued cost savings.

In sync with its growth strategy and commitment of being the First Choice for consumers, the company formed a joint venture (JV) with leading Canadian cannabis producer, The Hydropothecary Corporation (“HEXO”), which was announced in August 2018. The JV, known as Truss, will operate as a standalone company, exploring opportunities in the highly anticipated consumable cannabis market, which is expected to be legalized in Canada in 2019.

Conclusion

We believe the aforementioned strategies and actions, including its cannabis JV, position Molson Coors for further growth in 2019. This view for this Zacks Rank #3 (Hold) stock is further supported by our VGM Score of A and long-term earnings growth rate of 4.5%.

Don’t Miss These Consumer Staples Stocks

Campari Group (DVDCY - Free Report) , with long-term earnings per share growth rate of 7.5%, currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Keurig Dr Pepper, Inc. (KDP - Free Report) , with long-term earnings per share growth rate of 17.1%, presently carries a Zacks Rank #2.

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