Analyst Note| Nicholas Johnson |
As shares of narrow-moat Boston Beer rose over 115% from their March lows, we ostensibly morphed from bulls into bears: our fair value estimate went from near the top of the Street to near the bottom. Given the stock’s recent performance, it goes without saying that expectations were lofty heading into its second quarter. They clearly weren’t high enough, however, as the firm delivered a massive top- and bottom-line beat relative to our expectations as well as CapIQ consensus. Make no mistake--we remain extremely bullish on the company’s growth trajectory, and we plan to increase our fair value estimate to $580 from $431 to reflect the sustained and unprecedented growth in the hard seltzer category, as well as the higher operating leverage that should materialize longer term. Nevertheless, while we previously thought the market was placing myopic focus on Boston Beer’s margin pressure, sentiment has swung wildly to the other side of the spectrum, with investors seemingly entranced by Truly’s growth rates without any regard for the profits that this growth can realistically drive. Ultimately, the current share price implies a chimerical future that we just can’t get behind, and we see the shares as overvalued.