Molson Coors Enjoys Strong Loonie On Tap

It may be American-owned, but Molson Coors Brewing Co. (TAP) still has a strong presence in Canada. So strong in fact, that it is expected to generate as much as 60% of its operating profit there in 2007.

Given the Canadian dollar’s rapid appreciation, Molson Coors should reap some of the benefits, said Goldman Sachs analyst Judy Hong. She raised her earnings estimates and price target on the brewer, noting that some of the loonie’s strength is already reflected in the share price.

Strength for the Canadian dollar also supports her expectations for free cash flow to rise to a range of US$6-7 per share in 2008 and US$8-9 in 2009.

“Investor confidence should grow in this outlook based on improving fundamentals with solid continued U.S. market share growth, better competitive performance in Canada and good cost savings realization,” Ms. Hong said in a note to clients.

She said the company’s decision to either boost its share buybacks or dividends should come next Spring and will serve as a catalyst for the stock.

Ms. Hong rates Molson Coors a “buy,” while her price target climbs US$5 to US$110.

TAP 1-yr chart: