Boston Beer’s Beer Portfolio Fares Well, but Beyond Beer Continues to Stumble; Shares Attractive

We plan to nudge our $680 fair value estimate for narrow-moat Boston Beer down by a low-single-digit rate after updating our model for third-quarter results that display stabilization in performance across legacy parts of the portfolio. Excluding Truly declines, Boston Beer posted 14% depletion growth in its third quarter, repeating the performance it clocked in its second quarter. But total depletions (including Truly) still contracted 6% (around the 7% the firm saw in its second quarter), indicating that, while Truly and some other brands (Angry Orchard, Dogfish Head) head toward being right-sized, these brands still pack a disproportionate impact on the company average, given still languishing seltzer demand. Fortunately, we saw the firm largely reaffirm its prior outlook to include $7-$10 in adjusted EPS (from $6-$11 prior), depletions declines of 4%-7% (from 2%-8% prior), and price increases of 4%-5% (from 3%-5%). Our preprint outlook included a depletion decline of 4%, a price increase of 4%, and EPS of around $13 (which we plan to adjust downward to $10 driven primarily from lower shipments).