Boston Beer's Structural Challenges Remain: Morgan Stanley Analyst Anticipates Slower Growth

Morgan Stanley analyst Eric Serotta reiterated an Underweight rating on the shares of Boston Beer Company Inc SAM and raised the price target from $270 to $285.

Boston Beer reported a third-quarter FY23 revenue of $601.599 million, beating the analyst consensus estimate of $593.67 million. Adjusted EPS of $4.66 beat the estimate of $4.08.

As expected, depletion declines moderated from - 7% in 2Q amid continued robust growth for Twisted Tea and moderately lower declines for Truly Hard Seltzer amid easier comparisons, says the analyst.

The analyst expects SAM's volumes to remain under structural pressure with continued declines in the malt-based hard seltzer category.

Also, Twisted Tea is likely to slow from its recent +34% growth rate from a larger base, writes the analyst.

Although Q3 gross margins increased 250 basis points y/y, it only beat the consensus by 10 basis points. The analyst notes SAM guided to lower-than-expected GM expansion in 4Q due to less incremental pricing, higher shortfall fees, and lower fixed cost absorption at its own breweries.

The analyst sees limited visibility for SAM to return to its targeted 49% - 50% gross margins over the next several years.

The analyst raised the price target amid the contraction in peer multiples amid rising rates and GLP-1 uncertainty.

Price Action: SAM shares are trading higher by 4.81% at $335.00 on the last check Monday.

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