Citi Initiates Boston Beer With A Sell, $186 Target

Citi’s Wendy Nicholson initiated coverage of Boston Beer Co Inc SAM with a Sell rating and price target of $186.

Decelerating Growth

“While craft beer continues to outpace the overall U.S. beer category, the increasing fragmentation of the category has led to slower growth for the more well-entrenched players like SAM,” Nicholson pointed out.

The robust growth of the company’s hard cider business has seen a sharp decline through 2015, leading to deceleration in Boston Beer’s overall growth.

Related Link: CLSA Downgrades Boston Beer As Competition Continues To Heat Up

The factors that led to this deceleration included increased competition in the craft business, lack of meaningful innovation, pricing issues relative to the broader market and increased need to raise marketing spend.

Given that these factors continue to be in place, Nicholson believes that “slower growth may be here to stay for SAM for the foreseeable future.”

Downside Risk

The stock has been trading at a 105 percent premium to its peers on an average over the past five years. Although Boston Beer is currently trading below its historical average valuation, driven by several negative earnings revisions through 2015, the analyst believes that there could be further downside risk.

Nicholson mentioned that there could be 7 percent downside risk, “given our lack of confidence in the current consensus earnings outlook.”