Growth On Tap For Molson Coors - Barron's

Sales of Molson Coors Brewing's (TAP) flagship beer, Coors Light, rose 6.8% from July to September, against overall sector growth of less than 1%. Barron's Christopher C. Williams says these results are far from a fluke, and with sustained growth Molson's shares could take off in the coming year.

Some analysts believe Coors Light can continue to sustain its growth from the summer, boosting Molson's stock over the coming year from its current trading price of around $37/share. A sales and distribution venture with SABMiller (SBMRY.PK) could help earnings as well, with market share gains and significant cost savings potentially creating double-digit earnings growth. The venture, MillerCoors, has $7B in revenue, can produce around 70M barrels through eight breweries, and has nearly 30% of the U.S. market.

Last year, Molson has $6B of net revenue and produced nearly 1.6B gallons of beer. This makes it the world's sixth-largest brewer, and it is tied for the first-place slot in Canada. Anheuser-Busch's (BUD) Bud Light is the top U.S. brew with 1 19% market share. Molson's Coors Light is in fourth, with a 7.9% share, but stands to gain if Anheuser has any difficulties with its purchase of InBev purchase (INBVF.PK).

Shares down around 25% this year, Molson says it can create $500M in annualized savings from integrating operations, but bulls expect the savings could be even higher and point to surpassed synergy targets from the company's 2005 merger. Analysts expect net income of $3.04/share this year, but better-than-expected savings could boost that number to $3.70.

• Kim Scott, of Ivy MidCap Growth fund, believes the stock has been hurt an earnings miss in Q2 and general market turmoil. He thinks the stock should trade at 15 times expected 2009 earnings, bringing the stock up to around $56/share.
• Steve Roge, of Roge Partners fund, thinks the stock is worth more than $60/share. He cites the company's good balance sheet, strong management team, the potential for higher-than-expected free cash flow, and a possible share buyback.
• Ann Gilpin, a Morningstar analyst, forecasts Molson's operating margin will reach 15-16% within five years vs. less than 13% in 2007.

:::::::::::::

• Despite the economic downturn, U.S. demand for alcoholic beverages has remained fairly strong. Judy E. Hong, of Goldman Sachs, expects the beer market to grow as demand slows for more expensive spirits, and maintains a Buy rating on Molson Coors.

Comments

[User 315459:]

Steven Roge runs a mediocre mutual fund of funds and is completely unqualified to opine on individual stocks. He has no training in this area beyond a bachelors degree and he is only a "portfolio manager" because he works for his father's financial planning practice. Look elsewhere for actual investment advice.

Also, he has contributed to seekingalpha.com twice, recommending Boston Beer and now MolsonCoors. Stick to beer Steve, leave investment advice to the professionals.

2008 Dec 08 03:50 PM