The Zacks Analyst Blog Highlights: Boston Beer, Craft Brew Alliance, Carlsberg, SABMiller and Anheuser Bush

Zacks

For Immediate Release
 
Chicago, IL – October 03, 2013 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Boston Beer (SAM-Free Report), Craft Brew Alliance (BREW-Free Report), Carlsberg (CABGY-Free Report), SABMiller (SBMRY-Free Report) and Anheuser Bush (BUD-Free Report).
 
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Here are highlights from Wednesday’s Analyst Blog:

Investing in Oktoberfest

It’s early October, and with October comes Oktoberfest and the pleasure of beer drinking.  Beer stocks have posted varied returns over the past year, but there have been some outsized gains.  Boston Beer (SAM-Free Report) has been the hottest and had rallied just over 118% at writing.  Craft Brew Alliance (BREW-Free Report) was up about 71%, while Carlsberg (CABGY-Free Report) and SABMiller (SBMRY-Free Report) lagged recording gains of 4.6% and 5.9% respectively.  By comparison, the S&P 500 ETF had posted a gain of 16.7%.

Given the Oktoberfest season and some powerful investment returns in the brewing industry, it might be time to look at which brewer is the best investment.  I’ll leave the award for the best tasting beer to you.

Looking at earnings:

The table below displays a list of major brewers.  Brewing is a global industry so there is a universe of international names.  The table displays the change in EPS estimates over the past thirty days for this fiscal year and next, expected earnings per share growth for the coming year, and the Zacks Rank. 
A Zacks Rank of # 1 is a Strong Buy and indicative of a company seeing sharp upward momentum to earnings per share estimates.  A Zacks Rank #3 is a Hold, while a Zacks Rank #5 is a Strong Sell and consistent with a company seeing material downward revisions to its earnings per share estimates. Most of the names are Zacks Rank #3.

As indicated by the Zacks Rank #1, SAM has seen the largest upward revision to earnings over the past thirty days.  Anheuser Bush (BUD-Free Report) was the only other name to see earnings estimates revised higher.  No names have seen EPS estimate cut and the remaining companies have seen steady analyst activity on earnings.  As a result, SAM and BUD seem to have the most favorable momentum in earnings expectations.

One surprising aspect of the table is the outlook for earnings per share growth. Despite its size, BUD is expected to post the second largest sales growth of the group at 16.8%.  The earnings growth at SAM is less dynamic at 14.7%, while BREW has the quickest earnings growth by a long shot at nearly 70%. Its small size and the strong niche of craft beers are probably fueling the growth. There are markets to penetrate and a recovery in earnings is expected to take place after high operating expenses in 2012.
Sales growth, gross margin, and dividend yield:

The next table highlights sales growth, gross margin, and dividend yields for the group. In another surprise, BUD is expected to show the fastest revenue growth in the coming fiscal year.  It is growing slightly faster than SAM and well above its large cap competitors.  BREW had the third highest sales growth estimate.

Gross margin is a bit hard to analyze in a table, but BUD stands out again as showing strength.  Its recent gross margin at 58.5% was above the 10 year median.  Its gross margin looks firm relative to SAM and TAP both outright and relative to trend.   BREW has seen its gross margin ease back in recent quarters, but the overall level is high compared to recent years.  The reporting on SBMRY may make it difficult to compare its gross margin with the group.

Conclusions:

When trying to come up with the best beer investment, it feels like I’m in a beer tasting contest where the contestants’ sport both positive and negative attributes and it is difficult to call a winner. Depending on your style and mood, the results can differ. There is no silver bullet.  Given the mix of earnings growth and valuation, drinking beer may be more pleasurable than investing in beer, but here are some final thoughts:

Value hunters may be most attracted to CABGY.  The stock had the lowest valuation measures based on PEG ratios, 12 month forward PE ratios, and price to sales ratios.  Earnings growth is expected to be respectable in the coming year at 12.4%, but sales growth is slow and expected to rise just 3.82%.  The value may be linked to the outlook for slow sales growth.  A recovery in the European economy could be a surprise benefit given the focus of operations.

Momentum players will be attracted to SAM given its strong upward revision to earnings estimates, solid growth outlook and strong stock price, but valuation is stretched.  The valuation would keep my portfolio from drinking this name.   SAM is a stock which could look tasty after a correction.

BUD stands out as attractive when mixing the value and growth picture together.  Although it is a Zacks Rank 3 (Hold) it has seen its earnings estimate revisions move higher and it possesses a solid outlook for sales and earnings growth.  Stability in gross margin and its dividend are added positives.  The downside rests in BUD’s valuation. It is not cheap, which keeps it from being clearly crowned the king of beers from an investment perspective.   

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