Sales of spiked seltzer are showing no signs of going flat anytime soon, according to a new analyst note from Guggenheim, which just boosted the price target for the parent company of major player Truly Hard Seltzer.
As Guggenheim Managing Director Laurent Grandet told Yahoo Finance’s YFi PM, Boston Beer Company (SAM) could be uniquely suited to capitalize on the seltzer category that’s been growing at 167% over the past 12-week period.
Truly has been maintaining about a 30% share of the market, “despite new entrants” and despite “constraints in manufacturing,” he said, adding that while privately held White Claw might be the industry leader, Truly could have room to grow given relatively lower retail distribution points.
Given Truly’s opportunity, Grandet boosted his price target for the hard seltzer’s parent Boston Beer to $449 a share from $462 a share while reiterating his Buy rating.
Hard seltzers overall have proven to be a rising substitute for beer drinkers, particularly when it comes to younger age groups favoring lower calorie alternatives. Boston Beer has stemmed the negative impact of that shift by investing in the Truly brand it launched back in 2016 and by buying up quicker-growing Delaware craft brand Dogfish Head. Both of those moves have enabled Boston Beer to offset slumping sales of its flagship Sam Adams Boston Lager.
Competitor and Budweiser owner AB InBev (BUD) also made a play on the seltzer space by buying Bon & Viv Spiked Seltzer, though it has seen its market share fall by more than half over the last year to just 6%.
“In the context of hard seltzer, I would say White Claw and Boston Beer have been so focused on those two products,” he said, adding that AB InBev has so many issues at a larger scale “that they can’t focus as much as those two pure players.”
Grandet upgraded Truly’s expected full-year growth to 160% from 140% and another 85% next year, considering room for distribution improvement. He was also upbeat about the fact that White Claw has been able to grow its share while also raising prices. Assuming Truly is able to do the same would serve to improve margins in future quarters, he said.