It seems that The Boston Beer Company, Inc. SAM has been in the red territory for quite some time now. Shares of this Zacks Rank #4 (Sell) company have underperformed the Zacks categorized Beverages – Alcoholic industry and the broader sector in the past one year, mainly due to soft depletion trends throughout 2016.
While the stock declined 20.9%, the industry incurred a loss of 0.6%. On the other hand, the Zacks categorized Consumer Staples sector gained 3.3% over the same time frame.
Additionally, the stock touched a 52-week low of $141.55 yesterday, though it recovered to close the day at $144.90.
Let’s Delve Deep
We note that soft depletions have been persistently weighing upon the company’s performance. This is mainly due to weakness in the craft beer and cider categories, as well as a challenging retail backdrop. Though Boston Beer reported better-than-expected bottom-line performance in fourth-quarter 2016, management remains uncertain about volumes and profitability for 2017.
Further, the soft depletion trends, which have continued into 2017, remain a headwind . Evidently, depletions through the six-week period ended Feb 11 declined nearly 15% from the year-ago period.
For 2017, the company projects earnings per share in the range of $4.20–$6.20, based on an uncertain volume outlook. Also, estimates have witnessed a downtrend in the last 60 days. The Zacks Consensus Estimate of $5.47 for 2017 and $5.89 for 2018 declined 14% and 11.3%, respectively.
Boston Beer Company, Inc. (The) Price and Consensus
Boston Beer Company, Inc. (The) Price and Consensus | Boston Beer Company, Inc. (The) Quote
Boston Beer has also been witnessing contraction in its gross margin for four straight quarters now. In the fourth quarter, the company’s gross margin shrunk 150 basis points to 49.1%, attributable to adverse package and product mix, partially neutralized by improved prices and cost-saving initiatives at the breweries.
Furthermore, the company faces intense competition from well established players in the industry like Molson Coors Brewing Company TAP, on the basis of taste, product quality, brand image, price and consumer preference. This is likely to dent Boston Beer’s financial performance.
However, we remain encouraged by the company’s efforts to revive the Samuel Adams and Angry Orchard brands, as well as its focus on cost savings and efficiency projects. We believe that Boston Beer’s practice of acquiring assets to expand geographically will help it to gain significant market share. Further, it boasts a VGM Score of ‘A,’ with long-term earnings growth rate of 12%, which raises optimism in the stock.
Given the above mentioned headwinds, we believe that you should dump the stock for the time being, unless Boston Beer’s initiatives turn the tables for the stock
Better-ranked stocks in the same industry include Castle Brands Inc. ROX and Compañía Cervecerías Unidas S.A. CCU, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Castle Brands has surged a whopping 67.1% in the past three months.
Compañía Cervecerías has increased 23.1% in the past six months. Also, the stock posted a positive earnings surprise of 36.4% in the last quarter.
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Molson Coors Brewing Company (TAP): Free Stock Analysis Report
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