Boston Beer

We will discontinue analyst coverage of Boston Beer on or about April 20.

We provide analyst research and ratings on over 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

Boston Beer Co Inc is assigned a 4-star quantitative star rating, illustrating our stance that this share class offers a somewhat attractive opportunity for investors. The stock currently trades at a 21% discount to our quantitative fair value estimate of $215.64 per share; however, some caution is warranted due to this estimate's medium uncertainty rating.

The company's profitability strengthens our valuation estimate. Highly profitable companies are often more resilient in recessions and are likely to generate stronger future cash flows for shareholders. For example, the firm's sales yield of 108.6% falls in the top 40% globally. This company has a robust ability to generate sales without much capital investment, freeing up more capital to be returned to shareholders in the long run. We believe this is a sign that shares could be cheap.

The firm's valuation metrics are an additional encouraging factor. A company's valuation metrics provide insights into the market's expectations for its future growth and profitability. The firm's enterprise value to EBITDA ratio of 7.0, for example, ranks in the bottom 30% compared with global peers. Relative to the company's EBITDA, the enterprise value of the business is low, which further promotes our favorable price/fair value ratio.

In addition to the aforementioned drivers, our model considers momentum as part of its comprehensive analysis. This share class has been a laggard relative to the broader universe over the past year. This underperformance makes the stock appear cheap, which portends a buying opportunity in light of other contributors to our model.

With its quantitative economic moat rating of none, this business is unlikely to consistently outearn its cost of capital without structural protection from competition. However, its financial health score is strong, suggesting that the company should be well positioned to weather tough times.

Boston Beer’s exclusive focus on high-end malt beverages, coupled with its strong innovation pipeline, bodes well for mid-single-digit top-line growth in the coming years.

Top volume shares in on-trend categories, including hard seltzer, flavored malt beverages, and hard cider, should help Boston Beer garner more distributor support and gain retail shelf space.

Boston Beer can leverage its strong in-house sales team to bolster ties with distributors and retailers and collect timely feedback from the marketplace for more-effective product planning.

The proliferation of products in categories beyond beer has increased the competitive ferocity, driving up customer acquisition and retention costs for Boston Beer.

Consolidation in the hard seltzer category could drag on over the next few years, which, coupled with Boston Beer’s investments in branding and in-house capacity in anticipation of demand normalization, will exert more pressure on margins in the near term.

Craft beer drinkers’ preference for locally sourced and brewed fare will continue to be a headwind for large national brands such as Sam Adams.