Is The Beer Industry Brewing?
Lior is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Is beer a good investment? For those of you who consider beer not only a refreshing beverage but also a potential investment, it's worth noticing several key factors that could put certain beer companies as an investment worth examining. Let's take a close look at several brewing companies that could have something to offer besides a refreshing beer.
Boston Beer (NYSE: SAM)
This brewing company, which is mostly known for its Samuel Adams, doesn't have a high market cap as other big brewers such as Molson Coors Brewing Company (NYSE: TAP) or Anheuser-Busch InBev (NYSE: BUD) have. Nonetheless, the company's stock started off the year on a positive note and spiked by nearly 17% (year-to-date). This rally may have been partly due to the financial results of the company in the fourth quarter and in 2012: Boston Beer's net revenues grew by 13.1% in 2012, but its operating profitability declined from 20.2% in 2011 to 16.5% in 2012. Moreover, the company didn't pay dividend in 2012. So is Boston Beer a brewery worth having? Let's turn to another brewing company that is growing faster.
Ambev (NYSE: ABV)
Ambev, formally known as Companhia de Bebidas das Américas, is a Brazilian company, which is controlled by Anheuser-Busch; it's mainly operated in Latin America. Thus, the company is exposed to currency risks, but it also capable to produce high growth in revenues: in the third quarter of 2012 the company's net revenues rose by 26% compared to the parallel quarter in 2011. Moreover, the company's operating profitability is also high for the industry at nearly 41%, as of Q3 2012. Furthermore, the company's dividend payment in 2012 led to an annual yield of around 3.5% to 3.8%. This yield is higher than the yield offered by other leading brewing companies including Anheuser-Busch (with an annual yield of 1.4%-1.7%) or Molson Coors (with a yearly yield of 2.8%).
But for many investors a safer bet will be to consider the big players in the U.S market: Anheuser-Busch with its subsidiaries and other joint ventures hold around 54% of the U.S beer market and Molson Coors along with SABMiller control nearly 30% of the market.
Anheuser-Busch is less capable in producing growth compared to the above-mentioned companies: its revenues rose by only 0.5% in the third quarter of 2012. Further, the company's relatively low dividend yield compared to other leading brewing companies puts it less attractive to hold for its dividend. Nonetheless, the company's operating profitability remains stable around the 30% mark. Despite the low growth in sales in the previous quarter, the company's stock was able to spike by almost 46% during 2012. This sharp rise may have partly stemmed from the company's acquisition of the other half of Grupo Modelo SA de CV it didn't own for $20.1 billion. If the company will grow its business via new ventures or acquisitions, it could lead to future growth in Anheuser-Busch's stock in future.
Finally, let's turn to Molson Coors. This company might have some of the positive and negative points of all of the above companies. Its dividend yield is in the middle of the pack. The company's net revenues growth in 2012 was also in the middle at 11.4%. Even though its operating profit declined, its profitability remained above the 20% mark. Moreover, based on the company's EPS (earnings per share) and its diluted dividend per share (DPS), its payout (EPS/DPS) was around 52% in 2012 compared to 34% in 2011. This means, investors got more than half of the company's profits in 2012. This could serve as an incentive to consider this company for those who wish to get back as much as possible of their investment back via dividend payments.
The Foolish Bottom Line
The beer industry has some interesting companies worth considering. The companies listed above could accommodate different investors such as those who seek growth stocks, low risk stocks or high dividend paying stocks.
For further reading: Why Coffee Prices aren’t affecting Starbucks?
Disclaimer: The author holds no positions in stocks mentioned and does not plan to initiate positions within 120 hours of the posting of this article. This article is to be used for educational, research and informational purposes only and does not constitute investment advice. There are no guarantees, expressed or implied, of future positive returns in regards to the subject matter contained herein. Understand the risks inherent in investing before making the decision to invest or consult an investment professional for more information. Reasonable due diligence has been performed in regards to the information in this article. However, the author expressly disclaims any liability for accidental omissions of information or errors in fact.
liorc 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!