Skip to Content
Stock Analyst Update

Boston Beer Brews Up Solid Results, but Shares Frothy

The narrow-moat firm's brand investments should support solid volume performance.

Mentioned:

Narrow-moat  Boston Beer’s (SAM) full-year earnings largely met our expectations, with sales growing 15% versus our 16% estimate and operating margin contracting 180 basis points to 11.6%, matching our estimate. Top-line gains continue to be driven by volume, with 13% full-year depletion growth (11% in the fourth quarter) fueled by brands like Truly, Twisted Tea, and Angry Orchard. We’ve been impressed by Truly’s growth trajectory and think increased distribution, new flavors, and categorywide strength should support its momentum (management estimates hard seltzer volume grew 200% in 2018). However, the Samuel Adams brand remains soft, and we think the firm will need to make substantial investments behind its flagship offering in the form of marketing, refreshed packaging, or line extensions to revitalize growth. Over the long run, we expect revenue growth to fall to roughly 4% as the craft beer market decelerates and operating margins to average in the midteens as the firm invests in brewery capacity and efficiency and extracts costs from its supply chain. We anticipate lifting our $206 fair value estimate by a mid-single-digit percentage as we incorporate these results and the time value of money, but we continue to view the shares as overvalued.

As volume growth, particularly for Truly, continues to outpace management’s expectations, the firm increased its use of third-party brewers and employed incremental labor at its own breweries, leading full-year gross margin to contract 70 basis points to 51.4% and cost of goods sold per barrel to increase 2.9%. Media and point-of-sale investments, coupled with ongoing headwinds from freight and logistics costs (we estimate shipping costs per barrel increased 20% over the year prior), also hampered the bottom line. However, we expect that pricing (revenue per barrel increased 1.4% in 2018, and we forecast low-single-digit annual improvements) and cost savings should allow for margin expansion longer term.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Sonia Vora does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.