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Boston Beer Co Inc Class A SAM

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Morningstar’s Analysis

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Reinstating Valuation on Boston Beer at $750 Per Share; Shares Remain Undervalued

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

After a series of rapid revisions to its current-year outlook and a faster-than-expected deceleration in the hard seltzer business, we have reassessed the medium-term potential for narrow-moat Boston Beer. Most recently, management rescinded its EPS guidance for the 2021 year due to weaker-than-expected demand, noting hard seltzer-related inventory write-offs, shortfall fees (to third-party brewers), and other costs would jeopardize profit potential over the rest of the year. Recall, guidance offered on July 22 had already reduced volume growth to a low-30s midpoint versus 45% previously, while EPS had moved to $18-$22 (from $22-$26 prior). In turn, we have materially lowered our 2021-22 volume and EPS outlook for Boston Beer. Our updated forecast assumes the seltzer business matures faster than before, and we are estimating enterprise volume growth of 15% in 2021, down from 30% prior, while 2022 volume grows at a more tepid 10%, versus the 23% pace we had modeled earlier. This results in a 2021 EPS estimate of $16.99 ($19.41 prior), before more stable demand delivers more than $20 EPS again in 2022.

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Company Profile

Business Description

Boston Beer is a leader in U.S. high-end malt beverages and adjacent categories, with strong positions in craft beer, hard cider, and hard seltzer. The firm sells an array of flavor variants and package sizes, predominantly centered around four priority brands: Samuel Adams, Angry Orchard, Twisted Tea, and Truly Hard Seltzer. Its drinks are produced in both company-owned breweries as well as through third-party contract arrangements, and while the company primarily goes to market through independent wholesalers (as mandated by law), it operates a fairly large salesforce to induce demand across the value chain (distributors, retailers, and drinkers). The preponderance of revenue is generated domestically.

One Design Center Place, Suite 850
Boston, MA, 02210
T +1 617 368-5000
Sector Consumer Defensive
Industry Beverages - Brewers
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 28, 2020
Stock Type Aggressive Growth
Employees 2,423