A powerful up-trend is often a hint of good days ahead. In the case of
Boston Beer NYSE: SAM, the stock was trading at a rich valuation when I covered it nearly two months ago. But due to its sterling technicals, I
recommended getting in and riding the up-trend for as long as it lasted. If you picked up some shares back then, you would have been rewarded with a quick 50% gain and counting.
A nice chunk of this 50% gain came after Boston Beer reported its Q2 earnings almost a month ago. Shares surged more than 26% on the release.
SAM has entered into a tight consolidation since the move, trading between around $766 and $871 over the past four weeks. With shares edging towards the top of that range, should you look to get in (or add more shares to your initial position) on a breakout?
Let’s start by looking at the blockbuster Q2 earnings report.
Not Much to Complain About
In Q2, revenue grew 42% yoy to $452.1 million. That marked an acceleration in revenue growth over an impressive Q1 when revenue grew 31% yoy to $330 million.
And net income saw an even larger improvement over Q1. It came in at $60.1 million in Q2 2020, more than double the $27.9 million reported in Q2 2019. Net income had dipped $5.5 million yoy to $18.2 million in Q1 2020.
Depletions grew 46% in the second quarter, with 42% coming from Boston Beer legacy brands and Dogfish Head brands accounting for 4%.
Truly is Growing Beyond Expectations
The Truly brand has been a strong performer in the scorching hot hard seltzer market. That continued in Q2.
On the Q2 earnings call, CEO David A. Burwick said:
“The growth of the Truly brand led by Truly Hard Lemonade has accelerated and continues to grow beyond our expectations. Since early January, Truly has significantly grown its velocity and has sequentially grown its market share while many other hard seltzer brands have entered the category. Truly is the only hard seltzer not introduced earlier this year to grow its share during 2020. We'll continue to invest heavily in the Truly brand and further improve our position in the hard seltzer category as competition continues to increase.”
In my previous report, I cautioned that Truly would face increasing competition going forward. That concern now seems a bit overblown.
If Truly can even maintain, let alone grow, its market share in the hard seltzer market, it would reap huge rewards.
According to IWSR, hard seltzer is still only 2.5% of the total U.S. market for alcohol, but that number has tripled over the past year. Furthermore, IWSR is forecasting hard seltzer to triple again by 2023.
Samuel Adams and Angry Orchard Are Showing Signs of Life
While Truly has shined, Samuel Adams and Angry Orchard have seen sales dip due to the pandemic.
Boston Beer had previously said it doesn’t expect to return them to growth in 2020 but saw reasons for optimism during Q2. On the call, Burwick said, “We're encouraged however that Samuel Adams Boston Lager and Angry Orchard Crisp Apple both have experienced double-digit growth in the measured off-premise channels during the quarter. We continue to work on returning these brands to growth, but don't expect them to grow during 2020 because of on-premise closures.”
On-premise sales will continue to be an uphill battle for as long as the pandemic lasts. But this news provides optimism for the post-pandemic world.
Valuation
Boston Beer is now trading at around 68x its forward earnings. This valuation is still a bit high, but Q2 provided a lot of reason for optimism. Truly is showing no signs of slowing down, and Samuel Adams and Angry Orchard can realistically return to growth in 2021.
And we haven’t even touched on Twisted Tea, which continues to generate double-digit growth.
Look For a Breakout
As mentioned earlier, SAM has traded in a tight range since the explosive move on earnings.
Volume has been light, and the daily moves have been controlled. My only bone to pick is that shares are drifting up a bit. Ideally, you’d like to see shares drifting down in this scenario. But that’s really nitpicking for a chart as nice as Boston Beer’s.
In a perfect world, you’d see shares drift downwards on light volume for five sessions or so, following by a convincing breakout. But the most important part is the breakout; if shares move above $875 on high volume, closing near the daily highs, look to get in.
SAM Remains a Buy
Ideally, you would have gotten into SAM a couple of months ago (or earlier). With that said, Boston Beer exploded on earnings for a reason: its outlook improved materially. If the breakout comes to fruition, look to pick up some shares; you could put a stop-order within 10% of your purchase price and ride this uptrend for as long as it lasts.
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