Jefferies Initiates Coverage On Boston Beer, The 'Industry Leader In The Fast-Growing Craft Beer' Space

In a report published Friday morning, Jefferies initiated coverage on Boston Beer Co Inc SAM with a Buy rating and $362 price target, which implies a 24 percent upside potential.

Analysts Kevin Grundy and Peter Schanzer believe that, despite the risks posed by new entrants and the “push” from large brewers, Boston Beer “remains one of the best secular growth stories in staples as the industry leader in the fast-growing craft beer and cider categories. SAM's CY15e 17.3x EV/EBITDA multiple compares favorably to peers on a multiple/EBITDA growth basis (0.8x vs. peers 1.6-2.4x),” supporting their constructive view.

The specialists also weighed in on the craft beer industry, which, helped by secular tailwinds, can double its volumes over the next six to seven years and, while growth in the company’s beer portfolio (which accounts for approximately 65 percent of its mix) “has lagged the craft beef industry in recent years (and is likely to continue to do so), the ‘rising tide should lift all boats.'” Thus, they “expect SAM -as the largest craft brewer in the US- to continue to benefit as consumers shift toward fuller tasting/premium beers.”

Moreover, Grundy and Schanzer also see growth ahead for Boston Beer's Angry Orchard cider (about 25 percent of the mix), which drives almost two-thirds of its 13 percent five-year forecast for the company.

“While not without risk, our forecast assumes that the resurgent (although once dormant) cider category will triple over the next five years (i.e., 25% CAGR), which would still leave it at only c. 3% of US beer volumes,” they explained.

Shares of Boston Beer recently traded at $294.95, up 1.1 percent.