With most of the beer companies outperforming the S&P 500 recently, investors in these stocks have no reason to whine. The recent news that Anheuser-Busch InBev (NYSE:BUD) has agreed to sell its rights to several foreign brands to the United States should ensure competitive beer prices. This was part of the terms of an anti-trust lawsuit from the U.S. Department of Justice. This will allow BUD to proceed with the takeover of Grupo Modelo of Mexico, the brewer of Corona. As part of the agreement, BUD will sell Modelo's 50% stake in Crown Imports, which distributes Corona and other Modelo brands in the United States. This 50% stake is being sold to Constellation Brands (NYSE:STZ), which already owns the other 50% stake. Without this agreement, BUD's market share would have increased from 39% to 46%. By allowing Constellation to purchase the other 50% stake in Crown Imports for $5.5 billion, Constellation expects to double its sales.
The stocks of the following alcohol producers rose significantly on the news: Constellation Brands rose 2.49%, The Boston Beer Company (NYSE:SAM) rose 4%, Craft Brew Alliance (NASDAQ:BREW) rose 4.47%, and the Molson Coors Brewing Company (NYSE:TAP) rose 5.94%.
Let's have a look at the fundamentals of these suds producers:
Price to Book
Operating Cash Flow
5-Yr. Expected Annual Earnings Growth
Anheuser Busch InBev is the dominant player in the beer brewing industry with the highest market share of 39% and the highest gross margin. The company pays a dividend of 1.9%. BUD offers a total of about 200 brands and sells its products in 120 countries. Some of its famous names include: Budweiser, Beck's, Michelob, Bud Light, and Stella Artois. BUD is the choice for the investor who wants steady stock growth with a modest dividend.
Constellation Brands has a portfolio of over 100 wines, beers, and spirits and sells its products in 125 countries. Some of its products include: SVEDKA vodka, Robert Mondavi, Corona Extra, and Black Velvet Canadian Whiskey. Unlike the other companies featured in the article, Constellation is primarily a wine company. In fact, it is considered the world's leading premium wine company.
The company is attractively valued and remains focused on continued growth. Constellation has gotten to where it is today through a combination of organic growth and acquisitions. With the addition of the other half of the Crown Imports stake, Constellation plans on doubling its annual sales and operating profits. The company also expects the deal to have dramatic positive improvements in earnings per share and free cash flow.
The Boston Beer Company sells about 50 beers under the Samuel Adams or Sam Adams brand names. The company also offers the Twisted Tea and Angry Orchard brands. The company expects its gross margin to be in the range of 53% to 55% for 2013. This range takes into account price increases that may not fully cover higher anticipated costs of barley hops, packaging, freight, etc.
Boston Beer is in the process of placing its craft beer in cans in addition to bottles. The new can line could be available as early as summer. The benefits of using cans include: protection from sunlight and oxidation which can compromise the beer flavor, and more practical portability for places like the beach, golfing, boating, etc.
Keep in mind that SAM looks a bit overvalued at current levels. In addition to the high forward P/E of 29.3, the stock also has a high trailing P/E of 37.86. The company's price to book ratio is also significantly higher than its peers as shown in the chart above.
The Craft Brew Alliance was formed when Widmer Brothers Brewing and the Redhook Ale Brewery merged in 2008. The Kona Brewing Company joined the Craft Brew Alliance in 2010. The company expects to increase prices about 1% - 2%, reflecting the competitive pricing environment. It expects a gross margin of 28.5% to 30.5%, which reflects a higher brewery variable cost on a per barrel basis. Although the company looks overvalued in terms of P/E and PEG ratios, Craft Brew Alliance does have an attractive price to book ratio of 1.29 and an attractive price to sales ratio of 0.82. The company also has the highest expected annual earnings growth as compared to the other brewers.
The Molson Coors Brewing Company offers brands such as Coors, Blue Moon, Miller, Molson, Keystone Light, and more. The company pays a dividend of 2.4%. Molson Coors has a good valuation in terms of forward P/E and price to book ratios. This may help give the stock a boost and may compensate for its low expected annual earnings growth of 4.8%.
I think that the Boston Beer Company is too overvalued to invest in at the moment. I also think that Anheuser Busch and Molson Coors look good as steady dividend paying investments, but they may not outperform the market. The Craft Brew Alliance looks interesting with its high expected earnings and is likely to outperform the market. I also think that Constellation Brands presents a good buying opportunity as its new Crown Imports deal allows for a potential doubling of revenue. If I was forced to pick just one out of these choices, I would go with Constellation Brands. Constellation is sitting in a sweet spot for growth and it is fairly valued on the low end of the scale. STZ can produce wine, but it has no reason to whine.