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Want Share of Boon in Alcohol Stocks? Buy Boston Beer (SAM)


The Boston Beer Co. Inc. SAM looks like a strong contender in the Alcohol Beverage space as its sturdy portfolio, robust surprise trend, strategic initiatives, and growth through acquisition hold promise. Further, the recent evolution in drinking trends makes this Boston, MA-based company’s shares a must buy.

This largest craft brewer of the United States has seen its shares surge 16.6% quarter to date, outpacing the industry’s 12.1% upside. Currently, the industry is placed at the top 5% of the Zacks classified industries (14 out of 256). In fact, the company’s shares have substantially outperformed the broader Consumer Staples sector’s gain of 2.1%, which is placed at the top 38% of the Zacks classified sectors (10 out of 16). That said, let’s find out more about the factors aiding Boston Beer’s performance.

Solid Portfolio

Boston Beer commands a robust portfolio of globally recognized brands and is amongst the largest U.S. premium craft brewers producing beer, malt beverages, and cider products. In addition to selling alcoholic beverages in the United States, it distributes beverages in Canada, Europe, Israel, Caribbean, Pacific Rim, Mexico, and Central and South America, through a strong network of wholesale distributors. We expect the company’s continued focus on pricing, product innovation and brand development to boost operational performance and position in the market.

Robust Surprise Trend & Outlook Boost Estimates

The company reported solid second-quarter 2017, wherein both earnings and sales topped estimates and improved year over year. While this marked third straight earnings beat, sales returned to growth after three consecutive misses. Results benefited from top-line gains accompanied by gross margin improvement and lower operating costs owing to the company’s cost saving initiatives. Further, gross margins expanded in the quarter attributable to higher revenues per barrel that resulted from better pricing and package mix, along with lower brewery processing cost per barrel due to cost saving initiatives.

Boston Beer Company, Inc. (The) Price, Consensus and EPS Surprise

Boston Beer Company, Inc. (The) Price, Consensus and EPS Surprise | Boston Beer Company, Inc. (The) Quote

Moreover, the company raised the lower-end of its previously stated guidance range. The company now estimates adjusted earnings per share in the range of $5.00-$6.20 compared with the prior guidance of $4.20-$6.20. Consequently, the Zacks Consensus Estimate of $5.57 and $5.82 for 2017 and 2018 rose 14.6% and 8.6%, respectively, in the past 60 days.

Strategic Initiatives to Drive Growth

Boston Beer remains committed to a three-point growth plan focused on revival of its Samuel Adams and Angry Orchard brands, cost saving initiatives and long-term innovation. One, the company is keen on the revival of the Samuel Adams and Angry Orchard brands through packaging, innovation, promotion and brand communication initiatives. Further, it targets maintaining momentum for the Twisted Tea brand.

Two, the company has accelerated focus on cost savings and efficiency projects, while ensuring that these savings are directed for further brand development. In this regard, the company has adjusted the organization to the new volume environment, while at the same time retained capability to innovate and return to growth. This is reflected in the improved gross margin and increased spending on brands in second-quarter 2017. Based on this early success, the company continues to anticipate improving gross margin by one percentage point every year through 2019.

The company’s third priority is long-term innovation, wherein its focus currently hovers around maintaining the leadership of its Truly Spiked & Sparkling brand and ensuring it reaches full potential.

Gaining From Industry Trends

Albeit the prohibitions on drinking, recent observations unveil that alcohol sales trends have been witnessing a change with a higher demand for flavored products and tequilas. In fact, the industry has recently seen the spirits segment gaining traction, accounting for nearly 36% of the total alcohol market.

Consequently, the Alcoholic Beverages industry has gained 22.8% year to date, compared with the S&P 500 market’s growth of 11.5%.

Bottom Line

Though the company continues to face hurdles due to soft depletion trends stemming from weakness in Samuel Adams, soft craft beer and cider categories, its revival efforts and robust drinking trends position it for solid long-term profitability. Moreover, its brand-building efforts and initiatives to add products to portfolio, along with the acquisition of assets to expand geographically, are likely to help it gain a significant market share. The company’s potential to grow is further highlighted by Growth Score of B and a Zacks Rank #1 (Strong Buy).

Looking for More Promising Stocks? Check these

Other top-ranked stocks in the Alcoholic Beverages space include Craft Brew Alliance Inc. BREW, sporting a Zacks Rank #1, Constellation Brands Inc. STZ and Brown-Forman Corp. BF.B, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boston Beer has improved 20.8% year to date. Further, the company has delivered an average positive earnings surprise of 2.7% in the trailing four quarters.

Craft Brew Alliance has surged 24% in the last six months. Also, the company has delivered an average positive earnings surprise of 222.8% in the trailing four quarters. Further, estimates for the current fiscal have witnessed positive estimate revisions in the last 60 days.

Constellation Brands has gained nearly 33.4% year to date. Moreover, it has a long-term earnings growth rate of 18.2%.

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