Investing In Twisted Tea And Expanding With Sun Cruiser Will Strengthen Future Market Position

Key Takeaways

• Development of margin-accretive innovations and supply chain modernization are poised to boost revenue and improve margins.
  
• Expanding into new beverage categories and leveraging cash for share buybacks could enhance market position and EPS.
  
• Industry challenges and category volume declines, particularly for Truly, may weaken Boston Beer's revenue growth, market share, and earnings potential amid a tough macroeconomic environment.

Catalysts

Produces and sells alcohol beverages primarily in the United States.

• Boston Beer Company is focused on developing margin-accretive innovations, such as Sun Cruiser and Truly Unruly, which are expected to support revenue growth and improve net margins.
  
• Inventory replenishment and modernization of the supply chain, coupled with multi-year productivity initiatives, are expected to drive higher efficiencies and positively impact gross margins.
  
• Investment in core brands like Twisted Tea and potential market share gains across the portfolio are expected to support long-term revenue growth.
  
• The company is leveraging its highly cash-generative nature to return cash to shareholders through share buybacks, which may positively affect earnings per share (EPS).
  
• Expansion into new alcoholic beverage categories, including premium canned cocktails and the fourth category beyond traditional beer, wine, and spirits, is seen as an opportunity for revenue growth.

Boston Beer Company Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Boston Beer Company's revenue will grow by 3.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.0% today to 8.0% in 3 years time.
• Analysts expect earnings to reach $175.9 million (and earnings per share of $16.25) by about December 2027, up from $80.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.6x on those 2027 earnings, down from 44.5x today. This future PE is lower than the current PE for the US Beverage industry at 24.8x.
• Analysts expect the number of shares outstanding to decline by 1.48% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.92%, as per the Simply Wall St company report.

Boston Beer Company Future Earnings Per Share Growth

Risks

• There are structural headwinds in the beer industry, such as moderation, health concerns, and cannabis, which could impact overall revenue growth.
  
• The beer industry is experiencing declines in category volume, particularly in hard seltzer, with Truly underperforming, which could hinder Boston Beer's revenue and market share.
  
• Depletions decreased by 3% and shipments by 1.9% in the third quarter, driven by declines in Truly Hard Seltzer, leading to potential revenue and profit challenges.
  
• There is an expectation of higher shortfall fees in Q4 impacting gross margins negatively, which could influence net margins.
  
• The soft macroeconomic consumer environment and high competition in some categories like Twisted Tea could affect future earnings potential.

Valuation

• The analysts have a consensus price target of $304.43 for Boston Beer Company based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $389.0, and the most bearish reporting a price target of just $230.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $2.2 billion, earnings will come to $175.9 million, and it would be trading on a PE ratio of 20.6x, assuming you use a discount rate of 5.9%.
• Given the current share price of $315.07, the analyst's price target of $304.43 is 3.5% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.