By Ciara Linnane
Risks around Coors and Miller Lite brewer's ability to retain current growth are baked in, analysts say
Molson Coors Beverage Co.'s stock rose 2.4% on Friday, after Deutsche Bank upgraded the stock to hold from sell and said risks around the company's ability to retain its current robust growth are sufficiently discounted in its current valuation.
The move comes a day after Molson (TAP) posted better-than-expected third-quarter earnings and again raised its guidance as it continues to gain market share from the boycott of Bud Light. But the stock fell amid concerns that the full-year guidance implied some softness in the fourth quarter.
Molson said the U.S. beer market performed better than expected and sales were down less than earlier in the year, when inflation was discouraging consumers from making discretionary purchases.
The company has talked of how its revitalization plan and changed approach to marketing has put it in a good position to take advantage of its market-share gains.
Deutsche Bank seems to agree.
"We believe TAP's execution over the past 12+ months has markedly improved behind portfolio optimization efforts, more focused marketing spending, and sales force/supply chain modernization investments, which were evidenced in [third-quarter] over-delivery and exemplified by the stickiness of Coors Light/Miller Lite market share gains in the aftermath of Bud Light's disruption this year and robust EBITDA delivery [for the year to date]," wrote Deutsche Bank analysts led by Steve Powers.
Shelf-space gains of 6% to 7% for Coors and Miller late in the fall and potential spring resets "should entrench at least some of TAP's recent momentum into next year," they added.
Still, Molson's full-year guidance implies weakness in the fourth quarter, which the company said had more to do with planned brewery maintenance, moderating pricing benefits, and an intent to endthe year with inventory in a healthy position.
The guidance was materially short of consensus, the note said.
"While reticent to provide too much color on calendar year 2024, the company did affirm its confidence in maintaining portfolio momentum/growth -- again, particularly given the recent and expected shelf space wins for its brands," said the analysts.
Deutsche Bank raised its EBITDA estimate for 2023 to $2.407 billion from $2.358 billion previously. The analysts expect organic revenue, which excludes foreign-exchange effects, to be up 9.6%, up from 9.3% previously.
That's based on expectations for more than 9.3% growth in the Americas and more than 10.8% growth in Europe and the Asia-Pacific region.
The bank raised its gross-margin estimates by about 175 basis points to 38.0% from 37.7% previously.
It raised its stock-price target by $1 to $58, just below the stock's current price of $59.21.
The stock has gained 15% in the year to date, while the S&P 500 SPX has gained 14%.
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11-03-23 1343ETCopyright (c) 2023 Dow Jones & Company, Inc.