This Beer's For You

Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The brewer of my favorite lager, Samuel Adams, Boston Beer Company (NYSE: SAM), just made an announcement and issued new guidance. The company now expects 2012 earnings of $4.30 to $4.60 a share, up from its earlier estimates of $3.80 to $4.20.

The news delighted investors to say the least. On the day after the announcement was made shares appreciated by over 15% at one point and are now nearing a 52-week high. All the more impressive was the fact that the overall market in general declined.

However, the announcement shouldn't surprise anyone. Boston Beer, which has 1% of the domestic beer market, has had strong fundamentals in place for a long time. The company has low debt levels (long term debt/equity is 0.14%) and EPS has been growing on average more than 30% per year over a five period. The business has positive free cash flow, currently at $53 million, a strong brand (who wouldn't recognize the distinctive drinking glass?) and engaged management with a vested interest in the long term success of the company. The chairman, Jim Koch, is the founder and uses an old family recipe for the signature beer. He wouldn't want to let down his great-great grandfather. A potential negative is a relatively high P/E ratio of 29.

Boston Beer also made another headline recently, announcing its latest limited quantity release of the Utopia brand. The beer, which sports a hefty price tag of $190 per bottle, contains a 29% alcohol level. A typical beer has 5%. 

By contrast, the fundamentals at one of its competitors in the craft brewing space, Craft Brew Alliance (NASDAQ: BREW), are more mixed. Average annual EPS growth over the past five years has been robust but is expected to slow down a bit to around 40% a year. The P/E ratio is 49, higher than Boston Beer, the beverage industry and the overall market. Debt is reasonable with a long term debt/equity ratio is 12%. A negative is that free cash flow is below zero right now. However, for a company in a growth mode maybe that's not too much of a concern. 

The world's leading brewer, Anheuser-Busch InBev (NYSE: BUD), controls nearly 50% of the U.S. market share right now. For the most part the company also has strong fundamentals. Earnings are growing (EPS increased 47% for the trailing 12 months) and the valuation is good with a P/E of 19. Anheuser-Busch has over $4 billion in free cash flow but has a relatively high debt level. The company, based in Belgium, pays a dividend once a year.

Molson Coors Brewing (NYSE: TAP), the holding company for brewers Coors and Molson doesn't appear as strong as its competitors on the earnings front with decreasing growth over the last few years.  At least the debt level is relatively low --- it has a long term debt/equity ratio of 36%. Molson Coors does have a positive free cash flow of $405 million and has several well-known brand names. I'm sure everyone recognizes the Rocky Mountains on each can of Coors Light.

Anheuser-Busch used to have an advertisement campaign for its Budweiser brand which included the phrase "This Bud's For You". I kinda wish Boston Beer could have one too. How about "This Sam's For You"?

 

 

 


Mathman6577 owns shares of Boston Beer. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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