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CLSA Downgrades Boston Beer As Competition Continues To Heat Up

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CLSA's Caroline Levy downgraded the rating on Boston Beer Co Inc (NYSE: SAM) to Underperform, while maintaining the price target at $200, due to the ongoing weakness in the company's flagship brews.

Continuing Declines

Levy explained that the continuing weakness in Cider, Lager and Seasonals was driven by increased competition. "Based on recent IRI data, discussions with distributors, and the results of our recent beer survey, we now see flat depletion growth in 2016 (vs company guidance of mid-single digits)," the analyst mentioned.

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The company's cider sales growth decelerated to 16 percent in 2015, from 86 percent in 2014, and turned negative in 4Q. Declines have persisted in 2016, with the category weakening due to the rise of "near-beer" products.

Coney Island

CSLA's survey indicates bullish prospects for Boston Beer's hard root beer, with 40 percent beer drinkers saying that they already drink it occasionally, while another 30 percent having expressed an interest in trying it.

"However, Boston Beer's Coney Island is firmly behind Pabst's Not Your Father's, and now must fight off hard soda launches," from two more of its competitors, Levy stated, while adding, "We see hard root beer as a positive contributor to ‘16 growth, but not enough to offset declines elsewhere."

Estimates Lowered

The 2016 and 2017 EPS estimates have been lowered from $7.90 to $7.85 and from $9.00 to $8.55, respectively, to reflect slower top line growth.

Latest Ratings for SAM

Apr 2018Goldman SachsUpgradesSellNeutral
Apr 2018Cowen & Co.UpgradesUnderperformMarket Perform
Feb 2018Credit SuisseMaintainsNeutralNeutral

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