The Boston Beer Moves Lower Despite Improving Analyst Sentiment
The analysts have been bullish on the beer industry and The Boston Beer Company (NYSE: SAM) all spring and they've been getting more bullish by the day. One sell-side firm after another from Guggenheim to Credit Suisse has called this company out as a Strong Buy, Best Idea, or a Top Pick and has steadily pushed the consensus price target higher. The latest comes from Morgan Stanley who sees this stock as well-positioned for the second half of the year. Analysts at the company see the company's growth driven by a re-acceleration in the hard seltzer category that has been pointed out by other analysts as well. Among the many drivers will be large social gatherings over the summer, the resumption of college activities in the fall, and a significant opportunity for on-premise expansion in food-away-from-home channels.
While Morgan Stanley expects the company to miss consensus for the second quarter they're more bullish on the second half of the year. The company is maintaining its overweight rating and has assigned a price target of $1,450. This compares the broader consensus of $1,337 which implies about 37% of upside from recent price action but there is a caveat. Morgan Stanley's price target is a $50 reduction from the previous target and the first of what could become many price target reductions. Until then, the trends among the analysts are an increasingly bullish sentiment and a steadily rising consensus price target. The consensus is up 25% over the past 90 days and the current high price target is well above $1,500.
There Are High Expectations For Boston Beer Company
The analysts have been pushing up their expectations for revenue and earnings along with the consensus estimates for the stock price. The current consensus for revenue and earnings are $665.25 Million and $6.55 which are both substantially higher from previous reporting periods. Revenue growth is expected to top +22% sequentially, +47% from last year and over +200% in the two-year Comparison which are not impossible to reach but, in our opinion, may have already priced in the company's growth.
There are certainly no few bears in the market, either. Short interest on the stock topped 10% at the last report and may have moved higher in the weeks since. The high short interest may continue to weigh on share prices in the near term but that is ultimately a good thing. The companies potentially weaker than expected earnings are already getting priced in, it is unlikely they will cause another deep sell-off unless they missed by a very wide margin. More importantly, if the results are good enough, it would spark short covering and that would help reverse share prices.
The Boston Beer Company Is A Compelling Value
The Boston Beer Company doesn't pay a dividend right now but that's all right because it offers a compelling value for growth portfolios. The stock may seem overvalued trading at 40 times this year's earnings but the company is expected to produce high double-digit earnings growth over the next 5 to 8 years which makes it a deep value compared to future earnings. Looking forward, the company is trading at only 16X the 2025 earnings consensus and the value will likely be deeper compared to actual results.
The Technical Outlook: Boston Beer Company At A Bottom
Shares of The Boston Beer Company have been pulling back for the last few months but maybe at a bottom now. Price action has been bouncing off of a key support level and the indicators are in favor of support at this level so we are optimistic. The question now is how will the market react to earnings and we think it will be favorable. From what we've seen, food away from home activity has been robust and that should help drive solid results for this company. Assuming support is confirmed at the $925 level we see this stock moving up and above the short-term moving average very shortly and then extending the gains To $1,300 by the end of the summer.
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