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Boston Beer's Valuation Is Too Frothy

Sonia Vora (sonia.vora@morningstar.com)

 Boston Beer's SAM shares have rallied over the past year, up 72% versus a 16% decline for the brewers under our coverage and a 15% increase in the S&P 500 index. While we agree that Boston Beer's near-term prospects appear more favorable, as evidenced by improving volume trends in the first half of the year (depletions were up 11% versus down 7% in the prior-year period), we don't expect this level of growth to persist, particularly given the lighter comparisons the company is lapping this year. While we've ticked up our forecast for 2018 sales growth to more than 9% from the low single digits and maintained our expectation for low teens operating margin, we've held the line on our longer-term outlook for around 4% sales growth toward the end of our 10-year forecast and average operating margin around 17% (versus a five-year historical average around 15%).