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Boston Beer Co Inc Class A SAM

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Morningstar’s Analysis

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Economic Moat




Boston Beer’s Growth 'Truly' Incredible, but Investors Losing Sight of Pragmatism; Shares Rich

Nicholas Johnson Equity Analyst

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.

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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, 2020
Fiscal Year End Dec 28, 2020
Stock Type Classic Growth
Employees 2,128