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There are three key companies with large U.S. presences in the beer sector of the alcoholic beverage industry, two of which are large global producers with many different brands under their name, and one of which is smaller craft brewer. The beer stocks have had a rather ho-hum year so far in 2012, as they continue to face tougher competition from liquors and other alcoholic drinks. With these stocks underperforming the S&P 500 so far in 2012, is now the time to add a beer stock to your portfolio, and if so, which one?

About the Companies

Anheuser-Busch InBev SA (BUD) is a brewing company based in Belgium which produces, markets, distributes, and sells a portfolio of approximately 200 beer brands. The company's largest brands consist of Budwesier, Stella Artois and Beck's along with some local brands such as Bud Light and Michelob. Anheuser- Busch InBev is the largest of the three companies- having a market cap of $105 Billion and annual sales of $36 Billion.

Molson Coors Brewing Co. (TAP) is a holding company whose subsidiaries include Molson Coors Brewing Company Limited, operating in the UK, and Molson Coors Canada, operating in Canada, as well as a few other corporate entities. The company's leading brands include Coors Light, Molson Canadian and Carling. Molson Coors has a market capitalization of $7 Billion and total revenues of $3.5 Billion.

The Boston Beer Company, Inc. (SAM) is a craft brewer in the United States. Boston Beer produces alcoholic beverages at the company-owned breweries and under contract arrangements with other brewery locations. The company's largest brand names are Samuel Adams and Twisted Tea. The Boston Beer Company is the smallest of three companies being evaluated, with a market cap of $1.3 Billion and total revenues of just $513 Million.

Profitability

BUD

TAP

SAM

Gross Margin

56.5%

41.72%

55.47%

Operating Margin

27.94%

25.41%

20.21%

Net Profit Margin

17.8%

19.19%

12.88%

Looking at the profitability measures we can see that all three companies have fairly similar profit margins. Anheuser Busch InBev and The Boston Beer Company have the highest gross profit margins, which is not a surprise as many of their beers are considered "specialty" brands and therefore demand a higher premium in retail price. This is also paired with the lower cost of goods sold amounts reported by each company as a percentage of revenue. For example the cost of goods sold recorded by Molson Coors equals about 58% of revenues, whereas Anheuser Busch InBev and Boston Beer's cost of goods sold equal only 44% of their respective revenues. This shows that Anheuser Busch InBev and Boston Beer both produce their products much more efficiently and at a lower cost than Molson Coors.

Although Molson Coors does not have as impressive of a gross profit margin as the other two companies, they do have the best net profit margin of the companies, meaning their overall margin between revenues and sales is the highest of the three companies. Anheuser Busch InBev's net income is negatively affected by a minority interest in the company and therefore reports lower income available to BUD shareholders. Although Boston Beer can produce their product relatively efficiently, the rest of their operating expenses are rather high and for that reason they have the lowest operating and net profit margins.

Overall I'm most impressed by Anheuser Busch InBev's profit margins. They have the highest gross profit and operating profit margins, which shows that the company is operating the most efficiently of the three. As I said before there is a non controlling stake in the company which has negative impact on the net income of Anheuser Busch InBev, but has no impact on how efficient the operations of the company are. Even with the minority interest, BUD still has a strong net profit margin, which combined with their extremely strong gross profit and operating profit margins gives them an advantage in operational efficiency.

Valuation

BUD

TAP

SAM

Share Price

$66.25

$43.92

$99.01

P/E Ratio

21.91

12.14

20.56

EPS Growth- ttm

11.68%

1.57%

36.60%

PEG Ratio

1.88

7.73

.56

All three of these stocks trade at a very interesting share price valuation. Anheuser Busch InBev trades at nearly 22 times earnings, and when you take the EPS growth rate over the previous twelve months into consideration the stock has a peg ratio of 1.88. This makes BUD shares relatively expensive, though their P/E ratio of roughly 22 is in-line with the rest of the industry, the peg ratio of 1.88 is slightly high. Molson Coors Brewing Company trades at only 12 times earnings, much below the industry average, but their EPS growth of just 1.57% gives them an extremely high peg ratio of 7.73. The Boston Beer Company trades at a P/E ratio of 20.56 times, which is about average for the beverage industry. However Boston Beer has earnings per share growth rate over the past year of 36.60% and a very low peg ratio of .56. Overall shares of SAM seem to be the most underpriced based mainly on the in-line P/E ratio and extremely low peg ratio.

Conclusion

Looking at all the information present, it's hard to say that just one of these stocks is better than the others. For instance Anheuser Busch InBev has the most profitable margins and the most efficient operations of the three companies. However BUD's share price is already fairly valued and doesn't really look like a value at this price level.

On the other hand, The Boston Beer Company has an extremely cheap share price valuation at this price level and rapid earnings per share growth. Although Boston Beer's profit margins are lower than the other two companies, they do have the highest growth rates.

Molson Coors brewing company offers the highest net profit margin, but also the most overvalued shares. Molson Coors offers a trade-off- that is as an investor you trade off earnings growth for the company's 3% dividend yield.

In the end if you're looking for a growth stock in this sector, then The Boston Beer Company is your answer. If you're looking for a dividend paying stock in this sector then Molson Coors Brewing Company is your stock. Finally, if you want the best of both worlds, a nearly 2% dividend and safe consistent growth, then Anheuser Busch InBev is the best investment for you.

Source: This Beer Stock's For You