Should You Buy These Brewers?
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Now that summer is upon us, there are more than a few reasons to enjoy a cold one. Whether at a barbeque, the beach, or the ballpark, summer is a great time to enjoy a beer or five. However, beer sales have been declining for several years for a variety of reasons. The economy, weather patterns, and health awareness have all caused beer sales to shrink. While companies were hopeful leading into 2013, sales so far have disappointed. Despite the weak market, the major beer producers have held up relatively well. We take a look at a few companies to determine if they belong in your portfolio or just your cooler.
The big guys
Anheuser-Busch InBev (NYSE: BUD) is a major player in the beer market with a portfolio of approximately 200 brands. The company is best known for Budweiser, Stella Artois and Becks. The company sells its products in 120 countries and has been in existence for hundreds of years. The stock has had strong performance over the past five years and has continued to grow net income.
Molson Coors Brewing (NYSE: TAP) is another powerhouse with a vast brand portfolio that includes Coors Light, Molson, Blue Moon, and Corona. The company has a strong global presence and was founded in 1873. The stock has been rather unimpressive over the past five years, and EPS and net income have declined over the past three years.
While the overall slowdown in the beer market has hurt some of the larger producers, the craft beer market has shown signs of growth. Craft beer sales grew 15% over the past year, but still account for less than 10% of total beers sales.
The craft player
Boston Beer (NYSE: SAM) is one of the largest players in the craft beer market. The company behind the Sam Adams brand has seen exponential growth over the past five years with EPS growing by an annual rate of 23.47%. The company sells its products in the United States and select international locations and currently sells approximately 50 varieties under the Sam Adams line.
Craft beer offerings?
In order to drive business, Anheuser-Busch and Molson Coors have been offering new products with characteristics similar to craft beers. High alcohol content, upscale taste, and higher prices are the trends currently being embraced by the big players. Anheuser-Busch recently released the higher-alcohol Budweiser Black Crown after the success of Bud Light Platinum. Both of these offerings cost about 30% more that their standard counterparts. Anheuser-Busch has taken things a bit further by releasing Bud Light Lime-A-Rita, a margarita-like malt beverage available in lime and strawberry flavors. These beverages are surprisingly tasty, perfect for summer, and have the potential to become a very trendy seasonal drink.
Not to be outdone, Molson Coors has also boosted its beverage offerings for the season. Third Shift Amber Lager, a mild-flavored brew perfect for warm summer days, is the first release from the company's award-winning Band of Brewers. The Band of Brewers is a group of talented brewers across the company's network in the United States. Molson Coors is also offering a beverage outside of the traditional beer space with Redd's Apple Ale, an apple-flavored golden ale that is perfect for those looking for something different. The Blue Moon brand will offer a limited release summer brew and three new beers will be introduced in the Canadian Market.
The big brewers are positioning themselves for further global expansion in order to drive business. Anheuser-Busch is expanding capacity in the growth markets of China and Brazil. It acquired majority stakes in four Chinese breweries and opened two Greenfield breweries during 2012, with plans to open an additional four Greenfield breweries over the next two years. Capacity is also being increased in Brazil ahead of the 2014 World Cup. The company opened a new brewery in 2011 and has another one scheduled to open in 2014 prior to the World Cup.
Molson Coors is expanding globally by introducing three new cider flavors in Central Europe. The company also launched Borsodi Super Dry in Hungary, Carling in Croatia, and Molson Canadian in Ireland. Molson Coors remains committed to international growth by "investing ahead of the curve in high-opportunity emerging markets behind a solid portfolio of Coors Light, Carling, and Staropramen."
Closing the cooler
While the beer market has been disappointing the past few years, the market could have better days ahead. As the economy continues to strengthen, consumer spending should increase and that will benefit the beer market. Molson Coors and Anheuser-Busch InBev continue to develop new offerings to meet customer preferences and take advantage of the summer season. The companies also remain committed to international growth and exploiting new market opportunities. The seasonal opportunity, international expansion, and dividend yields above 2% make both stocks interesting investments for your portfolio.
Boston Beer is a growth play in the craft beer market. As craft beers continue to grow in popularity, Boston Beer stands to benefit as one of the most recognizable brands in craft brewing. The company may also benefit greatly from a recent decision to start putting some of their beers into cans. This will open the company to new market opportunities and could reduce costs. Several larger craft breweries, including Sierra Nevada, have also embraced the can.
The growth potential is largely built into the stock price at a current P/E ratio of 38.12. While I would not jump at the stock at current price levels, I would view any drop in price as a buying opportunity.
Boston Beer's Samuel Adams brand helped to redefine beer and kick off the craft beer revolution in the United States. Success breeds competition, though, and while just a few years ago Boston Beer had claim over most of the craft beer shelf, today the field is crowded. Can Boston Beer rise above the rest, or will it be squeezed between small local breweries on one side and global beer giants on the other? To help you decide, we've compiled a premium research report filled with everything you need to know about Boston Beer's risks and opportunities. Just click here now to find out whether Boston Beer is a buy today.
John Timmes has no position in any stocks mentioned. The Motley Fool recommends Boston Beer and Molson Coors Brewing Company. The Motley Fool owns shares of Boston Beer. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!