It’s often said that writers should write about what they know. It’s also said that traders should trade what they know. Given these two considerations, it should come as no surprise to anyone who knows me that I would choose to write about trading a beer stock.
Earlier this week, brewing giant Molson Coors Brewing Co. (TAP) poured Wall Street a mug of better-than-expected Q2 earnings. The Denver-based beer maker said it earned $278.4 million, or $1.51 per share, in the quarter ended June 29. That metric was way above the numbers posted in the same quarter last year, when Molson earned just $105.1 million, or 57 cents per share.
Revenue also increased, spiking to $1.18 billion from the prior year’s $999.4 million.
Perhaps more important than the raw numbers was the fact that Molson’s bottom line trounced Street expectations for EPS of $1.39; however, the company did go a little flat on the revenue side, missing consensus forecasts for top line of $1.23 billion.
Now, part of the reason for the increased earnings came from additional revenue from acquisitions the company made in Europe. The acquisitions helped TAP’s international business volumes increase by more than 50%. In the US and Canada, Molson’s net income actually was actually down slightly.
Click to Enlarge In the Q2 earnings release, Molson CEO Peter Swinburn said he expected weak demand for the rest of the remainder of the year. He also said that the company is expanding its marketing programs for its flagship Miller Lite and Coors Lite brands.
So, with expected weak demand and slowing top-line results, why should TAP be considered a buy here? Well, I like it for two key reasons.
First, the shares saw a nice 6% pop following the earnings report, proof that traders like what they saw in numbers. Year to date, TAP has seen an impressive 22.7% gain, more evidence that traders like the trend in the brewing giant. Second, the stock now trades right at its 52-week high, which makes it a momentum play that’s not yet overextended the way so many other stocks out there have become this year.
I suspect that if we continue to see improvements in the global economy going forward, we will see Molson’s metrics come in strong in Q3, and that will keep TAP shares frothing higher. I think traders who pour a little TAP into their portfolios here could easily drink up another 15% upside by the end of the year.
At the time of publication, Jim Woods held no positions in the stocks mentioned.