Credit Suisse Sees Boston Beer's Q3 Margins Improving On Pricing Benefits

  • Credit Suisse analyst Kaumil Gajrawala reiterated an Outperform rating on the shares of Boston Beer Co SAM and raised the price target to $405 from $385.
  • The analyst said the decline in Seltzer continues, but Twisted Tea’s momentum (+39%) gives him confidence that Boston can hit guidance.
  • He said margins in Q3 FY22 will rebound as Boston laps last year’s write-downs and sees the benefit of pricing. The analyst sees a 45% gross margin.
  • While new Truly growth expectations were still too optimistic, he cited, charges that hurt gross margin by nearly -1,400bp will not reoccur.
  • Boston Shares are down 30% year-to-date and trade at about 15 times NTM EBITDA, which is a premium to other beverage alcohol peers.
  • The analyst noted Boston is beginning to emerge from a period of under-earning due to Truly’s explosive growth.
  • He added that the forward expectations assume a return to historical profitability (18-20% EBITDA margin) as costs are optimized for normalized volumes.
  • Gajrawala thinks profitability rebound is happening on less co-packer volume, production efficiencies, lower input costs, and tailored media spend.
  • He listed a downturn in trade, share losses, and margin recovery as possible risk factors for the company.
  • Boston Beer is expected to report results on Oct. 20.
  • Price Action: SAM shares are trading higher by 0.90% at $353.83 on the last check Monday.
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