Jefferies Downgrades Boston Beer As Muted Trends In Key Categories Threaten Growth

  • Jefferies analyst Kevin Grundy downgraded Boston Beer Company Inc SAM from Hold to Underperform and lowered the price target from $331 to $275.
  • The analyst said SAM's top-line recovery remains largely tethered to stabilization in malt-based seltzers (< 45% of mix), where the blistering '19-20 growth rates are long gone given difficult Y/Y comps, RTD competition, on-premise recovery, consumer fatigue, and higher consumer trial some five years into category's development.
  • The analyst forecasts -6% / -5% declines for the category in '23 / next 3-5 years and a more dire -10% and down Mid-single-digit / High-single-digit % for SAM given the brand's concerning share losses in '22.
  • Though Twisted Tea and Hard Mountain Dew (~1% of mix) are (+) drivers in '23, the analyst noted that headwinds elsewhere in SAM's portfolio are likely to minimize any upside.
  • The analyst's FY23/24 EPS estimates of $10.56/$13.09 are 8%/9% below consensus estimates.
  • While slowing commodity inflation/supply chain optimization plans are positive for gross margin, the analyst sees Truly's deceleration and muted trends in other key categories to result in volume deleverage.
  • The analyst expects continued low-single-digit percentage declines for the craft beer (~15% of mix) and cider (~10%) industries over the next 3-5 years.
  • The analyst sees risk to Street estimates and SAM's multiple at ~14.5x EV/EBITDA with material downside, particularly given secular headwinds, in the majority of SAM's portfolio.
  • Price Action: SAM shares are trading higher by 2.43% at $330.48 on the last check Wednesday.
  • Photo Via Company
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