Company Reports

We plan to maintain our $350 fair value estimate on narrow-moat Boston Beer after absorbing its results in the seasonally small first quarter. Sales were up 4% on positive shipment volume and pricing trends, while EPS of $1.04 was a marked improvement from a $0.73 loss a year ago. We maintain our 2024 estimate for a 1% sales growth and EPS of $9.87 as we incorporate a flattish volume outlook given weakness in hard seltzer (still one fifth of total volume, by our estimate) and stepped-up investments in product innovation and marketing. Our 10-year projection for mid-single-digit sales compound annual growth rate and a low-teens average operating margin remains in place. We continue to see shares as undervalued following a 6% pop in April 25 after-hours trading.

We are cutting our fair value estimate for narrow-moat Boston Beer to $350 per share from $497 to incorporate a more cautious sales outlook, mainly due to a more protracted decline in demand for hard seltzer (roughly 30% of total volume in 2023) and lower operating margin. Our fair value estimate implies price/earnings of 32 times on our 2025 earnings estimate and a 2025 enterprise value/EBITDA multiple of 16 times. We are also raising our Morningstar Uncertainty Rating to Very High from High as weak hard seltzer sales trends are likely to cause volatile operating results.

We award a narrow economic moat rating to Boston Beer based on brand awareness and close distributor relations built over decades, thanks to the firm’s commercial success in various on-trend categories including hard seltzer, hard cider, and flavored malt beverages, which make up 85% of total volume.

We plan to reduce our $497 fair value estimate for narrow-moat Boston Beer by a mid-single-digit percentage after absorbing weaker-than-expected 2023 results and a soft 2024 outlook. However, we still view the shares as undervalued. For 2023, a sales contraction of 4% and adjusted earnings per share of $7.17 missed our estimates for a 2% fall and $7.44. We expect to trim our 2024 sales and EPS estimates by mid-single-digit percentages to incorporate a flattish volume outlook (versus a 3% rise in our prior estimate) due to persistent weakness in hard seltzer and higher investment in product development and marketing. That said, we are encouraged by the firm’s expanding innovation pipeline in hard tea and alcoholic ready-to-drink beverages and its efforts to add new territories and on-premises clients, which bodes well for its long-term growth. As such, we maintain our 10-year projections for a mid-single-digit compound annual growth rate for sales and low-teens average operating margin.

We award a narrow economic moat to Boston Beer, based on brand awareness and close distributor relations built over decades thanks to the firm’s commercial success in various on-trend categories including hard seltzer, hard cider, and flavored malt beverage that make up 85% of total volume.

Narrow-moat Boston Beer posted better-than-expected third-quarter results as product innovation coupled with supply chain cost savings drove better pricing and margins. Sales growth of 1% reversed the negative first-half trend, and adjusted EPS rose 23%, both outpacing our estimates for sales and adjusted EPS to fall by 2% and 5%, respectively. Management nudged up 2023 pricing and gross margin guidance to 2.5% and 42.5% at the midpoints, up from 2% and 42%, respectively, which we take as a positive sign that sales and margin recovery are expected to take hold. We plan to tweak our 2023 projections to align with the updated outlook but see no need to change our 10-year projection for mid-single-digit topline growth and low-teens average operating margins. We expect to maintain our $497 fair value estimate and view shares as undervalued at a 26% discount.

Narrow-moat Boston Beer posted better-than-expected second-quarter results, with moderating sales decline and margin rebound that indicate product refreshment and supply chain cost saving measures are starting to bear fruit. A revenue decline of 2% (versus the 5% fall in the first quarter) and EPS expansion of 9% (versus a loss) both exceeded our estimates (for sales and EPS to fall by 4% and 8%, respectively). We see no need to change our 2023 preprint estimates that are in line with management guidance and expect the brewer to take a few more quarters to reposition its Truly portfolio amid ongoing hard seltzer industry consolidation. We are incrementally more constructive on the firm’s long-term outlook as a leader in the premium beyond beer category and believe our 10-year projection for mid-single-digit top-line growth and low-teens average operating margins remain achievable. We maintain our $497 fair value estimate and view shares as undervalued, trading at a 24% discount after a 20% pop on the earnings update.

We have revised our fair value estimate for Boston Beer to $497, from $610, as we factor in a larger revenue impact from the seltzer correction and higher investment needs to support long-term growth and its competitive position. While the seltzer inventory write-downs have created investor angst, we believe the current share price, at a 37% discount to our intrinsic valuation, offers a buying opportunity. Despite this, we posit the long-term growth outlook remains intact, as Boston Beer maintains high mind and wallet share in various on-trend categories, thanks to an advantaged competitive position premised on brand prowess and distributor relationships, the sources that underpin its intangible-assets driven narrow moat.

We award a narrow economic moat to Boston Beer, based on brand recognition and close distributor relations built over decades thanks to the firm’s commercial success in various on-trend categories including hard seltzer, hard cider, and flavored malt beverage that make up 85% of total volume.

We plan to lower narrow-moat Boston Beer’s $610 fair value estimate by a midteens rate after digesting first-quarter results (revenue down 5% to $410 million and net loss per share widening to $0.73 from $0.16) that suggest it might take longer than we previously anticipated for volume and margins to bottom out.

Though much smaller than the brewing behemoths, Boston Beer is well positioned in malt categories, boasting a meaningful growth profile that mainstream beer lacks. In our view, the firm has shown a remarkable proclivity to not only augment its portfolio in alignment with the latest growth vectors but to also capture a disproportionate share of the economic rents generated from this growth by being one of the first movers. We’ve seen this exemplified in the company’s participation in the initial rises of craft beer, cider, and more recently, hard seltzer. While seltzer trends have slowed significantly, we surmise sales at Boston Beer will continue to be supported by secular consumption shifts (such as the desire for a low-sugar footprint and varied flavor profiles, and as evidenced by the success of Truly Margarita and the launch of Truly Vodka Seltzer).

We plan to lower narrow-moat Boston Beer’s $670 fair value estimate by a high-single-digit rate after digesting fourth-quarter results and a 2023 outlook that implies little near-term improvement. While the top line was solid, with shipments up 17% (extra week helped by nearly 600 basis points) and depletions up 3%, leading to total sales growth of 29%, profitability remains depressed. The gross margin of 37% was up from 29% in the year-ago period, but remains well below prepandemic marks near 50%, hindered by mix and supply chain inefficiencies. With respect to mix in depletions, Twisted Tea and Hard Mountain Dew fared well in the period, but key brands like Truly, Angry Orchard, Sam Adams and Dogfish Head declined, implying shortfalls in takeaway have yet to bottom. With depletions through Feb. 11 down 4%, poor retail demand persists.

Though much smaller than the brewing behemoths, Boston Beer is well positioned in malt categories, boasting a meaningful growth profile that mainstream beer lacks. In our view, the firm has shown a remarkable proclivity to not only augment its portfolio in alignment with the latest growth vectors but to also capture a disproportionate share of the economic rents generated from this growth by being one of the first movers. We’ve seen this exemplified in the company’s participation in the initial rises of craft beer, cider, and more recently, hard seltzer. While seltzer trends have recently slowed, we surmise sales at Boston Beer will continue to be supported by secular consumption shifts (such as the desire for a low-sugar footprint and varied flavor profiles, and as evidenced by the success of Truly Margarita and the recent launch of Truly Vodka Seltzer).

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).

Though much smaller than the brewing behemoths, Boston Beer is well positioned in malt categories, boasting a meaningful growth profile that mainstream beer lacks. In our view, the firm has shown a remarkable proclivity to not only augment its portfolio in alignment with the latest growth vectors but to also capture a disproportionate share of the economic rents generated from this growth by being one of the first movers. We’ve seen this exemplified in the company’s participation in the initial rises of craft beer, cider, and more recently, hard seltzer. While seltzer trends have recently slowed, we surmise sales at Boston Beer will continue to be supported by secular consumption shifts (such as the desire for a low-sugar footprint and varied flavor profiles, and as evidenced by the success of Truly Margarita and the expected launch of Truly Vodka Seltzer).

Though much smaller than the brewing behemoths, Boston Beer is well positioned in malt categories, boasting a meaningful growth profile that mainstream beer lacks. In our view, the firm has shown a remarkable proclivity to not only augment its portfolio in alignment with the latest growth vectors but to also capture a disproportionate share of the economic rents generated from this growth by being one of the first movers. We’ve seen this exemplified in the company’s participation in the initial rises of craft beer, cider, and more recently, hard seltzer. While seltzer trends have recently slowed, we surmise sales at Boston Beer will continue to be supported by secular consumption shifts (such as the desire for a low-sugar footprint and varied flavor profiles, and as evidenced by the success of Truly Margarita and the expected launch of Truly Vodka Seltzer).

While we believed we were largely through significant hard seltzer category declines, second-quarter results at narrow-moat Boston Beer indicate the company is not yet out of the woods. The hard seltzer segment saw unit and dollar volumes fall 17% and 13%, respectively, in off -premises channels, leading to weaker-than-hoped-for depletions. To this effect, second-quarter depletions contracted 7%, lapping 24% depletion growth, though excluding the declines in Truly (hard seltzer) depletion volumes, the rest of Boston Beer product depletions increased 14% in the period. Given the continued uncertainty around hard seltzer demand, the company now foresees category volume declines of 15%-20% in 2022, a material swing from the flat to 10% increase it had previously anticipated. This was a key contributor in Boston Beer’s revised depletion and shipment outlook for 2022, which is set to contract 2%-8%, woefully below the 4%-10% increase previously indicated and our 6% preprint projection. As a result, 2022 adjusted EPS guidance was sliced by roughly 40% at the midpoint, set to fall between $6 and $11, down from $11-$16 prior.

Though much smaller than the brewing behemoths, Boston Beer is well positioned in malt categories, boasting a meaningful growth profile that mainstream beer lacks. In our view, the firm has shown a remarkable proclivity to not only augment its portfolio in alignment with the latest growth vectors but to also capture a disproportionate share of the economic rents generated from this growth by being one of the first movers. We’ve seen this exemplified in the company’s participation in the initial rises of craft beer, cider, and more recently, hard seltzer. While seltzer trends have recently slowed, we surmise sales at Boston Beer will continue to be supported by secular consumption shifts (such as the desire for a low-sugar footprint and varied flavor profiles, and as evidenced by the recent launch of the hard seltzer Truly Margarita).

We don’t plan any material change to our $750 fair value estimate for narrow-moat Boston Beer after digesting first-quarter results that included an EPS loss of $0.16 and continue to view shares as attractive. Shipment volumes fell 25% to 1.7 million barrels, lapping more than 60% growth in the same period last year. We note, however, that volumes are still nearly 20% higher than first-quarter 2020 levels, despite inventory rationalization at retail. More importantly, we believe distributor inventories are clean heading into the summer season, at five weeks on hand (versus seven weeks last year), as the network cautiously rebuilds carry into the period. With net revenue declining 21% (but still up 30% over first-quarter 2020) and rampant supply chain and input cost inflation, Boston Beer’s gross margin was crushed, down 560 basis points to 40.2%. We don’t expect either of these issues to ameliorate imminently, which places our 2022 gross margin projection (47%) at risk.

Though much smaller than the brewing behemoths, Boston Beer is well positioned in malt categories, boasting a meaningful growth profile that mainstream beer lacks. In our view, the firm has shown a remarkable proclivity to not only augment its portfolio in alignment with the latest growth vectors but to also capture a disproportionate share of the economic rents generated from this growth by being one of the first movers. We’ve seen this exemplified in the company’s participation in the initial rises of craft beer, cider, and more recently, hard seltzer. While seltzer trends have recently slowed, we surmise sales at Boston Beer will continue to be supported by secular consumption shifts (such as the desire for a low-sugar footprint and varied flavor profiles, and as evidenced by the recent launch of the hard seltzer Truly Margarita).