Boston Beer Company Hops In After Hours Trading, But There Are Reasons To Be Skeptical

| About: Boston Beer (SAM)

Boston Beer Co. (NYSE:SAM) hopped in after hours trading Wednesday to $128.50 from the close at $114.23. The producer of Samuel Adams brands reported improved expectations for 2012 EPS after the close. They increased their diluted EPS guidance to the range of $4.30 to $4.60. Previously they guided for diluted EPS in the range of $3.80 to $4.20. Analysts had an average estimate of $4.21. They stated that "This increase is primarily due to increased shipment volumes and the timing of certain selling, general and administrative expenses." They also announced that depletions - the amount sold by distributors and wholesalers - are expected to increase to between 11% and 13% for the year. Their previous target for depletion growth was between 8% and 12%. They also increased their 2013 depletion growth target to between 10% and 15% from the previous target of high single digits.

Boston Beer has produced an impressive string of nine years of consecutive growth in both revenue and earnings. It appears that 2012 will make it 10 years in the revenue department as the first three quarters have shown revenue growth of 14.5%. Their earnings estimate of $4.30 to $4.60 is a slight decrease from the $4.81 they reported in 2011. However, last year they had a $0.92/share charge related to a 2008 recall so there actually is EPS increase when you ignore one-time items. Analysts estimates prior to the news was for EPS to grow in 2013 to $4.66 from the estimated $4.21 indicated previously. I would expect to see some analyst upgrades over the next week or two as analysts digest the news reported Wednesday.

It is also interesting to note that an article appeared in Fortune Wednesday describing how big beer companies are working hard to get into craft brewing. The article interviews the executive chairman of SABMiller (OTCPK:SBMRY) executive chairman. SABMiller and Molson Coors (NYSE:TAP) operate a joint venture called MillerCoors which in turn has a division called Tenth and Blake. Tenth and Blake has popular craft beers such as Killian's, Leinenkugel's and Blue Moon. Boston Beer may be receiving increased competition going forward from the sounds of this article.

Boston Beer has seen a significant amount of insider selling recently. In particular, the chairman has sold nearly his entire position this year. Many other insiders have been selling so perhaps they are telling us that the great bull run is over. On the other hand, some of this selling might be related to tax planning because of increased tax rates expected with the fiscal cliff.

Boston Beer has a big short interest with a short ratio of 30.4. So, Thursday could show a big increase in share price if the shorts are squeezed like a lemon in a craft beer. On the other hand, the valuation seems rich given the certainly outdated estimate of 10% earnings growth next year while the PE is north of 25 and heading higher.

The trading Thursday will be quite interesting and possibly volatile but I think I will watch and not trade it. However, it might be setting up for a new short at a higher level after the dust settles. For now in the beer space I'd rather own Anheuser-Busch InBev (NYSE:BUD) which trades at a lower PE multiple of 19.3 and is projected to increase EPS by roughly 11% which is slightly higher than the now outdated estimate for Boston Beer.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Tagged: , Beverages - Brewers, Earnings
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