Molson Coors Is A Solid Value And Income Play

Summary

• Molson Coors Brewing Company (TAP) is an attractive investment for a value and income investor. The firm will benefit from the Cannabis market.
• TAP is expected to increase its dividend yield and we anticipate it will provide in excess of 3% yearly at current levels.
• The company is trading at a low P/E of 11.27. This is a sharp discount to the market multiple, the industry multiple and its historical price average.
• We see 30% upside appreciation from current levels with the P/E trading at its historical average.

Investment Thesis

Molson Coors Brewing Company (NYSE:TAP) is a good investment for a potential value or income investor. The company trades at a low P/E of 11.27, at a discount to its historical value, the overall market and its industry. We believe the company with dividend increases will yield in excess of 3% +. In the long term the company is set to benefit from the cannabis market and could generate substantial revenues as cannabis increasingly becomes legalized.

Mispricing

Cannabis Products

TAP has the potential to generate new revenue streams as cannabis increasingly becomes legalized in the world. There are expectations for cannabis to be legal globally within the next decade and this is a rapid growing market. TAP has shown this with their Truss Canadian cannabis beverage that is set to be released soon. This is from a joint partnership with HEXO, from which TAP has a 57.5% interest. TAP highlighted how they believe that the cannabis beverage market may be worth $3 billion in Canada. If TAP was to obtain 25% of this market, that could be potential $750 million yearly revenue for the business just from Canada alone, which would lead to an increase in revenue of around 4% for the company.

Dividend Payout

The company in its recent earnings call announced that it would target a dividend payout ratio of 20-25% annual trailing EBITDA for the second half of 2019. We project on the conservative side that this would be a payout of $400,000,000 yearly to investors which gives the company an attractive forward dividend yield of 3.1%. The low payout ratio indicates to us that this is a dividend that will be sustainable in the long term. We believe TAP is therefore a good investment for an income investor as well as a value investor.

Analyst’s 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.