Brewers On Tap
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Two beer companies are reporting on Wednesday, Nov. 7: beer behemoth Molson Coors (NYSE: TAP), and baby brewer Craft Brew Alliance (NASDAQ: BREW). This is truly a case of a David and Goliath match, up as Molson Coors has been expanding its offerings of craft beers, intruding on the smaller brewer's turf. Meanwhile, Craft Brew Alliance makes only craft beers under four brand names: Kona, Redhook Brewery, Omission Beer, and Widmer Brothers.
Craft Brew Alliance has only 460 employees and is headquartered in the newly trendy craft beer hub of Portland, Oregon. Technically, it can't call itself a craft brewer, as biggest beer behemoth Anheuser-Busch InBev (NYSE: BUD) has a 32.2% minority interest in the company.
As Anheuser-Busch is over ten times bigger than Molson Coors, Craft Brew Alliance is merely just one of the many brands in which Anheuser-Busch has an interest. The beer sector is convoluted, if not incestuous, due to Prohibition-era rules that US beer companies cannot distribute their own beers in the US; and so competitors often have partnerships and agreements that other industries wouldn't countenance, like Molson Coors' joint venture agreement with Grupo Modelo to distribute Corona and other brands. But then again, Anheuser-Busch just agreed to buy the remaining stake in Grupo Modelo. You see what I mean about all the convolution?
But what will happen to little Craft Brew Alliance and big Molson Coors on Wednesday? Coors has an impressive insider hold, with 98% of all shares held by insiders. It also offers a 3.20% yield at a 42.00% payout ratio and a 11.87 P/E. Sounds like a pretty good value play, especially as the company beat on both top and bottom line when it reported Q2 earnings on Aug. 7. Incidentally, on their Q2 answers to analysts' questions on the call, management mentioned revenue from craft beers was up double digits. Past history is usually a pretty good indicator.
Analysts expect to hear $1.05 billion for Q3 revenue and $1.21 for EPS. They also want to hear guidance for 2013 for at least $3.64 billion in revenue and $3.72 in EPS. On the last earnings call Gavin Hattersley, Global CFO, said they were planning to pay down debt to the pre-acquisition ratio before their acquisition of Central European brewer StarBev for $3.4 billion over the next 24-36 months. Their debt stood then at a .63 debt/equity ratio. The StarBev deal spooked investors, as the Central European numbers were disappointing due to cost inflation and currency issues. Analysts will surely follow up on the StarBev numbers as well.
Craft beers are extremely popular, and craft breweries are growing like kudzu (a very invasive vine that grows fast in the South), with over 2,000 in the US now. Craft Beer Alliance just had a major announcement on Nov. 1 that they have partnered with an international distributor for their one-of-a-kind beers to debut in Europe and Asia. Craft Beer Alliance has a high P/E of 51.17, as expected from such a tiny company, but the forward P/E is 21.82.
The company has been bringing in top talent like Andy Thomas, former CEO of Heineken USA, as the new President to help Craft Beer Alliance leap the bar from third largest US craft beer supplier to compete with number one, Boston Beer (NYSE: SAM). Despite Boston Beer's beat on Nov.r 1 on both revenues and estimates, it was still downgraded based on costs and slumping sales; but the market didn't agree, sending shares up almost 8% the next day.
If you're the type to root for a little guy like Craft Beer Alliance, you might want to read an interview with Andy Thomas and CEO Terry Michaelson. My favorite part is where they use the term Redhooky to describe the kind of quirky, irreverent personality they ascribe to that brand. Also, there is an interesting section about how the big names have been telling beer retailers that craft beers are stealing the profits they should be making from premium retail beers. What a strange thing to say, considering that the big beer boys are buying up small brewers left and right.
It's hard to predict exactly what to expect from such a thinly traded name, but this was once a $30.00 stock that is now trading in the sevens. Also, if history is any indicator, the quarterly earnings growth is -93.10% year over year. Ouch. But they believe in themselves, as insiders hold 56% of shares outstanding and founder Kurt Widmer still owns 1,651,414 shares. Don't forget that Anheuser-Busch believes in them, too.
Seeing as Boston Beer beat on earnings and Anheuser-Busch also reported robust numbers recently, things look good for Molson Coors. Their last quarter numbers were good. Craft Brew Alliance is a totally speculative name, like a biotech, at this point and requires much more due diligence for anything more than a bar bet.
leglamp has no positions in the stocks mentioned above. 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.