The Anheuser-Busch/SABMiller Deal Is 'Transformational' For Molson Coors

The brokerage, which has a price target of $130 (21 percent upside) on the issue, said the deal is "transformational" for Molson Coors and sees solid 10 percent EPS CAGR. Following the deal, Molson Coors emerges as the No 3. beer player globally with the No. 2 position in the United States and Canada.

"We view the full 100 percent ownership of MillerCoors (from 42 percent economic ownership in JV with SABMiller) as transformational for TAP as it improves scale and should allow for its North American operation to unlock sizable cost cuts that were previously difficult to attain under the JV structure," analyst Judy Hong wrote in a note.

Hong expects double-digit EPS growth would come from strong margins via cost savings and synergies, solid cash generation and stable top-line growth volume despite volume remains challenging in most markets.

Related Link: Goldman Reinstates Anheuser-Busch With Buy Rating

Hong expects Molson Coors to announce an all-in (synergy plus ongoing cost saves) cost savings program of $900 million and projects margins could expand about 500bps by 2020 even with a 50–60 percent reinvestment rate.

The analyst said the deal nearly doubles Molson Coors' revenue and profit, and expects Molson Coors to get 70 percent of its profit from the United States, where pricing and margin dynamics should remain favorable despite muted volume.

Despite being less optimistic about return to volume growth in the United States, the analyst still sees path to 1–2 percent sales growth on positive price/mix.

"Initial free cash generation of around $1.5 billion should step-up to >$2 billion by 2020. This should allow for a de-leveraging from PF15 5.3X Net Debt/EBITDA to 3.6X by YE18," Hong added.

Shares of Molson Coors closed Friday's regular trading at $107.65 and gained 30 percent since the Anheuser Busch Inbev SA (ADR) BUD/SABMiller/Molson Coors deal was first announced September 2015.

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