Batle of the Beers: Which is the Best Buy?
Karin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I’ve got a t-shirt, I bought it in about 2009, I think. It says “The Drinking Will Continue until the Economy Improves.” A common saying, and a common feeling, I believe. Drinking beer is a fairly cheap indulgence, and in moderation, it does help to take one’s mind off his troubles, if only for a while.
The market for beer has held up quite well during the economic downturn, with 2011 sales down only 1% from 2010. In terms of overall alcohol consumption, beer has slipped from 56% in 1995 to just under 50% in 2011, but still far outranks both wine and spirits.
The market for craft beer has been exploding, but remains just a small fraction of overall beer consumption. In 2011, despite the existence of over 2,100 craft brewers, craft beer accounted for only 6% of beer consumption by volume, and only 9% by price.
So if you want to add a beer company to your portfolio, which stands out as the best opportunity? I took a look at the top two brewing companies, Anheuser Busch InBev (NYSE: BUD) and Molson Coors (NYSE: TAP), and the top craft brewer, Boston Beer (NYSE: SAM).
In my analysis, I tend to rely heavily on analyst opinion and estimates. I figure they have been studying the stock for a while and probably have a better handle on the numbers than I do. I do look at current news, as well, but I like to lean more on the numbers to provide an objective recommendation.
Anheuser Busch InBev is currently trading at about $88, at its 52-week high. It has a PE 19.99 and pays 1.50% dividend. The current analyst rating is a 1.4 (1.0 = Strong Buy, 5.0 = Sell), which is actually the best rating I have seen for any of the stocks I have analyzed this year. Its mean target price, though, is actually lower than its current price, at $81.56. There are 6 Strong Buy recommendations, 1 Buy, and 1 Hold.
The consensus earnings estimate for year-end 2012 is $4.69, a 17 increase versus 2011. The estimate for year-end 2013 is $5.12, 9% higher than 2012.
The stock is up 48% year-to-date, and up 71% since this time last year. The current estimated annual growth rate for the next 5 years is 12.89%, compared to an industry average of 13.07% and a sector average of 13.30%.
Molson Coors is trading at approximately $45 per share, slightly off its 52-week high. It has a PE of 14.86 and pays a 2.80% dividend. Currently analysts rate it a 3.0 (0 Strong Buys, 1 Buy, 7 Holds and 1 Underperform) with a mean target price of $46.00, for a 2% potential gain.
TAP’s year-end 2012 consensus earnings estimate is $3.89, 3% higher than actual 2011 earnings. Its estimate for year-end 2013 is $4.05, 4% higher than 2012.
The stock is up 6% since the beginning of 2012, and 17% in 52 weeks. The current 5-year annual growth is estimated at 4.80% vs the S&P at 10.14%.
Boston Beer is trading at approximately $109 per share, 15% off its 52-week high. It has a PE of 26.44 and pays no dividend. Currently analysts rate it a 2.7 (2 Strong Buys, 0 Buys, 2 Holds and 2 Underperforms) with a mean target price of 109.83.
SAM’s year-end 2012 consensus earnings estimate is $4.15, 10% higher than actual 2011 earnings. Its estimate for year-end 2013 is $4.72, 14% higher than 2012.
The stock is flat since the beginning of 2012, but up 47% since a year ago. The current 5-year annual growth is estimated at 9.21%.
So which of these three companies is the better buy? I have to go back to the numbers. With Anheuser Busch’s current PE and year-end 2013 earnings estimate, I see a stock price of $102, or a potential gain of 16%. TAP’s PE and earnings estimate leads to a stock price of $60, for 34% upside. And SAM’s projected price is $125, for a 14% gain.
I think Anheuser Busch has had an incredible run this past year, and although it has currently pulled back from its 52-week high, it seems a bit richly priced to me.
Likewise, Boston Beer has had quite a year, and its PE at 26 means it is very highly regarded. I love the beer, and look forward to drinking some Octoberfest this fall season, but I just don’t see the potential in the stock right now.
Molson Coors has had less of a run, and has the most reasonable PE at this point. Coors Light has been steadily gaining in terms of market share and is currently the #2 beer in the country, although it is still far outserved by #1 Bud Light.
I recommend Molson Coors as a buy with a target of $60 by year-end 2013.
Fool blogger Karin Hernandez does not own shares in any of the companies mentioned in this entry. The Motley Fool owns shares of Boston Beer. Motley Fool newsletter services recommend Boston Beer and Molson Coors Brewing Company. 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.If you have questions about this post or the Fool’s blog network, click here for information.