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Here's Why Boston Beer Stock Continues to Display Strength

The Boston Beer Co. Inc. SAM has been displaying strong momentum despite the turmoil caused by the coronavirus outbreak. The stock has won investors’ applause for continued top-line growth in first-quarter 2020, on strong shipments and depletions growth. Moreover, the company remains committed to the three-point growth plan focused on the revival of its Samuel Adams and Angry Orchard brands, cost-saving initiatives, and long-term innovation. Also, its financial strength safeguards its position amid the pandemic.

Notably, the company has rallied 68.2% in the past three months compared with the industry’s growth of 28.2%. Further, the stock has gained 20.8% despite reporting soft first-quarter 2020 earnings on Apr 22.

 



Factors Driving Performance

Boston Beer continued to experience strength in shipments and depletions despite the impacts of the coronavirus pandemic, which began to be felt in early March. The strength translated into another quarter of strong top-line growth for the company, with revenues up 31.4% year over year in the first quarter. As already stated, this growth can be primarily attributed to a 32.2% improvement in shipments to 1.4 million barrels. Excluding the addition of the Dogfish Head brand, beginning Jul 3, 2019, shipments increased 27.5%. Depletions grew 36%, including a 30% rise from Boston Beer legacy brands and 6% from the addition of the Dogfish Head brand.

Prior to the impacts of the COVID-19 outbreak, the company was on track to maintain its guidance for 2020. Depletions for the 9 weeks ended Feb 29, 2020, increased 32% from the prior-year period.  Excluding the Dogfish Head brand, depletions rose 26%.

Depletion growth can be attributed to major innovations, quality of products and strong brands alongside solid sales execution and support from distributors. Further, increases in Truly Hard Seltzer and Twisted Tea brands as well as the inclusion of the Dogfish Head brand aided growth. Depletion growth was partly offset by the fall in Samuel Adams and Angry Orchard brands.

Notably, Boston Beer has been lately witnessing robust trends for the Truly and Twisted Tea brands, which is driving depletions. In the first quarter, the company witnessed accelerated growth for the Truly brand as well as the newly launched Truly Hard Lemonade, which are growing beyond expectations. Since January, Boston Beer has seen momentum and expanded market share for the Truly brand, while other hard seltzer brands have lost share. Meanwhile, the Twisted Tea brand generated consistent double-digit volume growth in the first quarter.

Going forward, the company envisions significant opportunities for distribution and volume growth for Truly and Twisted Tea brands. Further, it expects to continue expanding the distribution for the Dogfish Head brand.

Apart from this, the company is on track to revive the Samuel Adams brand through packaging, innovation, promotion and brand communication initiatives under the three-point growth strategy. It also remains keen on retaining Angry Orchard and Twisted Tea’s momentum, while ensuring Truly Spiked & Sparkling's leadership position in the hard sparkling-water category. Further, the company is focused on accelerated cost savings and efficiency projects, with savings directed for further brand development. Also, long-term innovation and maximizing the shareholder value remains a key priority. Boston Beer remains optimistic about the future of craft beer and cider categories.

Additionally, the company’s balance sheet is reasonably healthy, indicating that its cash position should be able to fund investments. As of Mar 28, 2020, its cash and cash equivalents increased more than three folds sequentially to $129.5 million. Notably, the company had no short-term obligations. Moreover, the company drew down $100 million from its line of credit in March 2020 to enhance the cash position and liquidity amid the coronavirus pandemic. Currently, it has $50 million available under its line of credit.

During the first quarter and the period between Mar 30 and Apr 21, Boston Beer did not repurchase shares to preserve liquidity. As a result, the company has $90.3 million remaining under the $931-million share buyback authorization.

Conclusion

Although the impacts of the COVID-19 outbreak remain concerning for the second quarter and the year ahead, we expect the company to remain resilient on strong top-line growth and focus on key initiatives. In fact, the stock’s Growth Score of B supports our Zacks Rank #2 (Buy) for the stock.

3 Other Beverage Stocks You May Count on

Reeds, Inc. REED has an expected long-term earnings growth rate of 20% and it currently sports Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
 
Constellation Brands Inc. STZ, with a Zacks Rank #2 at present, has an expected long-term earnings growth rate of 1.5%.

National Beverage Corp. FIZZ has delivered a positive earnings surprise of 2.9%, on average, in the trailing four quarters. It currently sports a Zacks Rank #1.

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Constellation Brands Inc (STZ) : Free Stock Analysis Report
 
National Beverage Corp. (FIZZ) : Free Stock Analysis Report
 
The Boston Beer Company, Inc. (SAM) : Free Stock Analysis Report
 
Reeds, Inc. (REED) : Free Stock Analysis Report
 
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