A Sober Look At Beer

|
Includes: ABEV, BUD, HEINY, KNBWY, TAP
by: Steve Auger
Summary

Beer stocks are having a tough go given fierce competition from microbreweries and craft beers. Of the five top beer stocks, only KNBWY is trading near its 52-week high.

An analysis of fundamental factors indicates that TAP appears to be the best company for investment.

The long-term growth rate for TAP is 9.53%, up from 7.55% four weeks ago. TAP is currently in a bullish seasonal pattern and has good technicals.

TAP is suggested as a buying opportunity but is risky due to its high debt load leading into a rising interest rate environment.

With stagnating sales and fierce competition from microbreweries and craft beers, one might say that beer stocks have a hangover. The top five beer stocks (by MktCap) trading on U.S. exchanges are Anheuser-Busch InBev SA/NV (NYSE:BUD), Ambev - Companhia de Bebidas das Americas (NYSE:ABEV), Heineken N.V. ADR (OTCQX:HEINY), Molson Coors Brewing Company (NYSE:TAP), and Kirin Holdings Co., Ltd. ADR (OTCPK:KNBWY). Of the five, only KNBWY had a respectable 52-week stock price appreciation.

(Source: Portfolio123)

Over the last five years, there has been a wide range in performance, with TAP leading the pack with a 2.5x gain in price, while ABEV did not see any price appreciation.

(Data Source: Quote Media, Charting Tool: MS Excel)

Which of these stocks, if any, would make the best investment? For an answer to this question, let's have a look at the company fundamentals.

Stock Fundamentals

This section provides a breakdown of the 5 largest airlines for investors who prefer stocks over ETFs.

NOTES:

(1) HEINY and KNBWY are OTCs that don't have sufficient number of analysts following them so they may be unfairly penalized for factors based on estimates in this analysis.

(2) I did not provide industry-wide statistics as most beer companies are foreign, and I have limited statistics and estimates for foreign companies.

Valuation

TAP has the lowest projected P/E Ratio and P/B Ratio. BUD has the lowest PEG, not surprising considering it is the largest company of the bunch. KNBWY has the lowest P/S Ratio.

(Source: Portfolio123)

Growth

TAP comes out on top for sales growth at 36.9%, but projected sales growth is a tepid 1.6%. BUD has a projected sales growth of 3.4% per year.

(Source: Portfolio123)

Quality

ABEV scores highest on quality factors with the highest Return on Assets of 15.9% and Return on Equity of 29.7%. BUD has the highest ROE 5-Year average at 20.4%. The last quality factor is Interest Coverage and KNBWY scores highest with a figure of 10.7%.

(Source: Portfolio123)

EPS Estimates Trend

The earnings estimate trend is sobering, with only ABEV not spilling suds. BUD and TAP are experiencing lower estimates compared to 4-weeks previous.

(Source: Portfolio123)

Growth Rates

The last factor for this analysis is the long term growth rate estimate. TAP takes top spot here with 9.5% annual long term growth along a substantial improvement from four weeks prior.

(Source: Portfolio123)

The table below provides the score for each of the five stocks based on the factors listed above. TAP appears to be the best selection based on fundamentals.

Stock

BUD

ABEV

HEINY

TAP

KNBWY

Score

3

4

0

5

3

Technicals

TAP is trading within a longer-term ascending channel and is also sitting just above a significant support level. These are bullish technical but traders need to be wary of a breach of the lower trend line or the support level. Either of these occurrences could trigger a rapid fall, spilling beer on the floor all the way down to a price level of the low-80's or even the mid-70's.

Is TAP a BUY?

Looking at the seasonal pattern for TAP, the stock typically outperforms the S&P 500 for the month of Mar. After March, it is still bullish but doesn't start to outperform again until mid-July.

(Source: EquityClock.com)

TAP is a risky trade due to the large long-term debt load, but they should be able to pay it down from profits over the next 5 years. For traders who don't mind the extra risk in a rising interest rate environment, I suggest going long now (recent price of $98.94) with a price target of $120 and a stop loss at $90.

Wrap-up

Beer stocks are having a tough go given fierce competition from microbreweries and craft beers. Of the five top beer stocks, only KNBWY is trading near its 52-week high. An analysis of fundamental factors indicates that TAP appears to be the best company for investment. The long-term growth rate for TAP is 9.53%, up from 7.55% four weeks ago. TAP is currently in a bullish seasonal pattern and has good technicals. TAP is suggested as a buying opportunity but is risky due to its high debt load leading into a rising interest rate environment.

Disclosure: I/we 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.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.