Boston Beer Removed From Goldman's Sell List; Upgraded On 'Innovation Ramp'

• Boston Beer Co Inc SAM shares are down 16 percent year-to-date, plunging from above $320 in January to below $200 in September.
• Goldman Sachs’ Judy E. Hong upgraded the rating on the company from Sell to Neutral, while raising the price target from $208 to $244.
• Boston Beer’s shares have already responded to the core beer weakness, while the company’s sales could be propelled by a ramp-up in innovation, Hong mentioned.

Since May 2015, when Boston Beer was added to Goldman Sachs’s Americas Sell List, shares are down 1.2 percent, versus a 3.5 percent gain in the SPX and a 2.1 percent gain in the XLP, analyst Judy Hong said.

Weakness in core beer has resulted in a volume miss and multiple compression. While the core beer weakness is already known, “innovation ramp across beer and non-beer should drive sales and earnings upside in 2016,” Hong stated.

In the report Goldman Sachs noted, “Our Sell rating had been predicated on our view that SAM’s multiples could compress as weak core beer trends (Sam Adams Lager and Seasonals) and innovation void drive sales deceleration.”

Hong said that this had “largely played out” with Boston Beer’s depletion growth decelerating to 8 percent in 1Q and to 6 percent in 2Q. Following the decline in depletion growth in 1H15 and expectations of a soft 3Q, depletion growth is expected to accelerate to 8 percent in 4Q15 and to 8.5 percent in 2016, with innovation ramps.

Although core beer growth is likely to remain weak and Angry Orchard growth may slow, the recent launch of Coney Island Hard Root Beer “is off to a strong start and we expect upcoming innovations including Rebel Grapefruit IPA, Sam Adams Nitro beer, and national expansion of Angel City craft beer to add more than 5pts to growth in 2016,” the analyst commented.

The EPS estimates for FY15, FY16 and FY17 have been raised from $7.40 to $7.48, from $8.15 to $8.75 and from $9.19 to $10.00, to reflect higher volume and margins. These estimates are 2-9 percent higher than consensus expectations.