Price Target And Ratings Update On Beverage Companies

Includes: BF.B, BUD, CCU, MNST, SAM, STZ
by: David Ristau

Our EquityAnalytics department is always updating price targets and ratings on companies that we cover based on new information. Our price targets and ratings are thoroughly researched and use financial analysis tools to determine stock prices. Today we are updating the following companies from our coverage Brown-Forman (BF.B), Anheuser-Busch (BUD), United Breweries (CCU), Monster Beverage (MNST), The Boston Beer Co. (SAM), and Constellation Brands (STZ).

The chart below shows new ratings, price targets, and buy/sell ranges vs. old ones:

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Brown-Forman: Maintain At Hold, Decrease PT From $98 To $95

We continue to like the Brown-Forman lineup of spirits and liquors, anchored by the Jack Daniels line. The JD line has branched out with the Honey-flavored line and more expected to be on the way. We did drop our price target slightly for Brown-Forman as we increased our capital expenditures expectations for the next few years. Additionally, shares outstanding increased. The company has performed at the levels we had expected, and we believe that the company should see about 2-3% growth in sales this year with 4-5% growth in 2013. We like BF.B as a holding on any dips as the stock also offers a 1.7% yield on dividend as well. We like picking up shares at $75.

Anheuser-Busch Inbev: Maintain At Hold, Increase PT from $69 to $82

We are starting to rev up our expectations for BUD after what we thought was a great last quarter for the company. They are looking very solid right now and outperformed our expectations for operating income. On top of this, we saw tax rates decrease and depreciation rise past expectations. All these things help equity value. The company has been making some smart acquisitions over the past year. What threatens BUD is the craft beer market that is continuing to grow in popularity. Well, BUD has been busy targeting companies and brewing their own craft styles. The company is a behemoth that does offer a lot of value at current prices as well. We think the stock is a little bit expensive to dip into right now, but a small dip would be very enticing for us. The 19 PE would look more appetizing at 17-18.

United Breweries: Maintain At Hold, Maintain PT At $47

No changes here. The company's latest report came in right as we expected. No major changes were made to our models, and the company looks pretty fair valued right now. United Breweries is one of the better growth stories in the beer industry, but it has a lot of competition in this market. The stock is just too expensive for the upside for us.

Monster Beverage: Downgrade from Hold to Buy, Increase PT From $60 to $64

Monster Beverage continues to generate some amazing returns and growth models. The company is growing a lot, and its shares are looking more attractive after the stock split. The stock has gotten a little bit ahead of itself, and we believe the value has dropped some for the company. Shares are pricing in about as good as it might get for MNST over the next few years. The company's 26 forward PE and 11.2 price-to-book ratio show that. Yet, we do think that this is a great growth stock that should continue to slowly increase in price with less risk right now. In a hard market to build any major moats, MNST has done it with the energy drink business. They are also seeing good growth in other parts of the business. We believe that right now is not the time to buy, though. We would look for a larger correction or more data to show that margins can improve even further to jump into this one. We sold all of our shares at $60.

The Boston Beer Co.: Upgrade From Hold To Buy, Increase PT From $123 to $127

The Boston Beer Co. is representative of two great things: American beer and craft beer. The company is American at its core, and it is in the craft beer business that is very popular and is only going to get more popular. The "cool" vibe of craft beer is turning into great dollars, good margins, and a stock you want to own. Right now, SAM is a good value even at a 21 PE. The reason is that we believe that SAM has a great growth model that should allow it to have larger PE ratios than those with less growth. We are estimating 9-10% growth in revenue for this year and 8-9% for next year, which is a step above most of its competition. Yet, their growth is being modeled on the same PE-ratio. We see that as a discrepancy in value. The question that most investors are dealing with is whether the company can stave on tough competition as well as can they continue to increase margins. We believe that SAM has created a strong niche and has shown no slowdown in margin expansion.

Constellation Brands: Downgrade from Buy to Hold, Decrease PT from $28 to $22

The latest quarter for Constellation was a disappointment for sure. We dropped our PT significantly as we had overestimated the company's 2012 possibilities. The company forecasted well below what we had expected. The issue for STZ is margins are expected to get squeezed on brand building and sales investments. To us, we did not foresee such large hits to margins this year as growth was looking very strong. That drop this year is creating some uncertainty for us. We had to reduce our outlook models, which negatively impacted our price targets. STZ has the ability to be a very solid investment if margins can come back. For now, we believe they are fair valued and better options exist.

Disclosure: I am long SAM, STZ.