Sobering Up On SAM; Cowen Says Sell Boston Beer Co.

Boston Beer Company Inc SAM, an early pioneer and current leader in the craft beer space, has been hit hard by the rise in popularity and increasing competition of the multitude of craft brewery’s over the past few years.

With shares down nearly 20 percent year to date, fundamental top-line issues remain, leading Cowen and Company to suggest selling Boston Beer as one of their best smid-cap ideas. The firm maintains an Underperform rating on the company with a $126 price target.

“We believe that SAM's market leading positions within craft beer and cider, which remain under pressure, represent the potential for continued share losses and risk for further downward guidance revisions," said Cowen analyst Vivien Azer.

"Easier comparisons are not enough to turn around a business that is fundamentally challenged, which is evidenced from recent Nielsen performance, as well as reported results. Given our outlook, we believe that shares should trade at a discount to current levels,” she added.

Increasing competition in craft beer as well as the rise of craft spirits has been weighing on Boston Beer for quite some time. While struggles in beer and cider have been notable for the company, Azer contends that more competition in the flavored malt beverage space also poses a concern for Boston Beer, once a leading area of growth is now decelerating and seeing more competition from Miller-Coors Henry’s and Anheuser Busch Inbev NV (ADR) BUD's Spiked Seltzer.

After disappointing spring seasonal selections, the company will be looking improve its summer performance with an overhaul of the Sam Summer Ale. While seasonals have improved in the most recent quarter, numbers were still down 28 percent. Analysts look to the seasonal performance as a key indicator of the health of the brand equity, but also the effectiveness of new marketing and packaging initiatives.

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