Molson Coors: Share Price Approximates Our Fair Value Estimate After Cost Cuts, Stabilizing Volume

We no longer see the shares of no-moat Molson Coors TAP as offering a compelling risk/reward balance, as the stock price is approaching our $68 fair value estimate. The stock has appreciated 39% since January 2021, compared with an 18% gain in the S&P 500 index for the same period. We believe investors have reacted favorably to stabilizing volume trends in the brewer’s core midrange and economy beer segments as well as a series of cost-cutting measures implemented to wring efficiency out of its vast brewing operations. However, we see limited upside from the current share price.

Despite a modest improvement in operating results in recent quarters, our long-term view remains that Molson Coors lacks brand intangibles or cost advantages to support a durable competitive edge in the beer market, which is encapsulated in our no-moat rating. For us to become more enthusiastic about the brewer, we’d have to see it registering convincing success in the premium segment (the only growing segment in the stagnant beer market) dominated by entrenched top brands such as Michelob from wide-moat Anheuser-Busch InBev and Modelo and Corona from wide-moat Constellation Brands. Currently, Molson Coors holds negligible market share in premium beers. As leading premium brands in North America all date back 100 years or more, we think it’s reasonable to expect Molson Coors to take years (if not decades) of research, marketing, and distributor relationship building to incubate and nurture its own high-end brands into material commercial success. Therefore, our expectation is muted for Molson Coors to gain traction in premium beers in the coming years, which is reflected in our 10-year projection and in our $68 intrinsic valuation.