With beer stocks, it’s easy to overlook the smaller independent players like Boston Beer Company (NYSE:SAM). The American craft beer revolution, however, has forced big companies like Molson Coors (NYSE:TAP), Constellation (NYSE:STZ), and Anheuser Busch (NYSE:BUD) to not only share prime shelf space but overall market share.
Smaller beer makers like SAM are beginning to level the playing field. According to the Brewer’s Association, craft beer holds 13.2% share of the overall beer market and saw 7% retail dollar sales growth in 2018. Boston Beer stock presents a credible threat to the giants of water-heavy beer stocks like BUD and TAP. They’re seeing craft beer continue to solidify its place in the mainstream beer market.
Year-to-date, SAM stock is up about 55%. For the second quarter, Boston Beer had EPS of $2.36, compared to year-ago quarter EPS of $1.98 — an increase of 19%. The company also reported second-quarter-2019 net revenue of $318.4 million, up $45.3 million (or 16.6%) from the same period last year. That’s not too shabby.
Boston Beer is scheduled to post third-quarter earnings on Oct. 29 after market close. As Zacks Equity Research reported this week, SAM stock has a strong history of beating earnings estimates.
Between new mergers, upgrades, sponsorship deals and evolving consumer tastes, 2019 so far is looking like a great year for craft beer.
SAM Stock’s 2019 Tailwinds
Boston Beer has had various tailwinds throughout 2019, from their merger with Dogfish Head in May to the major growth of their spiked seltzer product, Truly Hard Seltzer. Just last month the company announced a multi-year partnership with the National Hockey League (NHL), naming Truly the official hard seltzer of the NHL.
Two weeks ago, BMO Capital Markets upgraded Boston Beer stock to “outperform” from “market perform.” BMO said the beer maker could see “80% growth” in 2020. “The main pushback against SAM – its high P/E multiple (2020E: 33x) — can be turned around on its head with a better assessment of SAM’s earnings potential,” stated the firm.
On top of that upgrade, UBS analyst Sean King changed the rating for SAM stock from “sell” to “neutral” just last week, writing that the extent of “… vertical integration and outlook for Truly growth will be key determinants of earnings growth for Boston Beer in fiscal 2020.”
Competitor Constellation Brands reported a decent Q2 last week, but the company’s $484 million equity loss from its rocky investment in Canopy Growth (NYSE:CGC) saw shares tumble almost 8%. SAM stock went up about 4% the same day.
Combating Big Beer Budgets With Quality
“We find your American beer is like making love in a canoe,” quipped British humorist Eric Idle during “Monty Python Live at the Hollywood Bowl” in 1982. “It’s f***ing close to water.”
American beer has evolved since 1982 with the massive rise of craft breweries across the country. There were about 93 craft breweries in the U.S. that year. Today there are over 7,000. That kind of leap demonstrates how smaller players, like Boston Beer stock, are challenging the U.S. beer behemoths that traditionally dominated the market.
To combat growing competition from craft beer, Big Beer companies pour millions of dollars into television ads and in-store marketing initiatives like branded standalone displays. Last year Anheuser-Busch InBev spent about $1.53 billion on advertising alone.
No matter how much money is thrown at advertising, Big Beer can’t ignore the overwhelming shift in demand for craft brews. Companies like SAM are answering virtually unlimited corporate advertising budgets with bottling quality. Their un-watered-down beers meet the U.S. consumer’s leveled-up drinking standards.
“At the end of the day I have a tremendous amount of faith in the power of the consumer,” writes University of Toledo’s “Beer Professor” Neil Reid, author of “Craft Breweries and Economic Development: Local Geographies of Beer.”
Dr. Reid is a geography professor at The University of Toledo who studies, writes, and lectures about the beer industry. He has confidence that the consumers, especially millennial consumers, have the power to transform the beer-scape in the U.S.
The Consumers Will Boost Boston Beer Stock
In fact, they already have. Over the past few decades craft beer has demonstrated true staying power.
“The future of craft beer will not be decided in the boardrooms of AB InBev, MolsonCoors, or Heineken,” writes Dr. Reid. “Rather, it will be decided by people like you and me and the answer we give when a bartender asks us ‘What will you have?’”
Big Beer stocks can’t afford to underestimate craft beer and the modern beer drinker. Between another possible earnings beat around the corner for SAM stock and the spiked seltzer trend making waves this year, the craft beer stock is proving that it has strong potential to catch up to Big Beer without compromising quality.
As of this writing, Anna Jacoby did not hold a position in any of the aforementioned securities.