New Products And Advertising Investments Will Shape Future Beverage Landscape

Key Takeaways

• Strategic innovation in new products and increased advertising aim to drive revenue growth and enhance market share.
  
• Focus on margin improvements and share repurchases indicates efficient capital allocation and strategic financial leverage.
  
• Decline in hard seltzer, inflation, tariffs, and slowing Twisted Tea growth threaten market share and revenue amidst shifting consumer preferences.

Catalysts

Produces and sells alcohol beverages primarily in the United States.

• Boston Beer Company is pursuing substantial innovation in new products like Sun Cruiser, Truly Unruly, and Hard Mountain Dew, which have been well-received and are expected to drive volume growth through expanded distribution and advertising support. This is likely to impact revenue positively.
  
• The company is focusing on margin enhancement initiatives, including procurement savings, improved brewery efficiencies, and more disciplined inventory management, which have already resulted in a higher gross margin and are expected to continue improving net margins.
  
• They are increasing advertising investment significantly, particularly in brands like Twisted Tea and Truly, to regain market share and improve brand perception, which is expected to increase revenue and support long-term earnings growth.
  
• Boston Beer has engaged in share repurchases, which can increase earnings per share (EPS) by reducing the number of shares outstanding, suggesting strategic capital allocation decisions that provide positive financial leverage.
  
• The expansion into the Beyond Beer category, leveraging consumer interest in health, wellness, and low-alcohol products, aligns with broader industry trends and positions the company for future revenue growth in emerging high-demand segments.

Boston Beer Company Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Boston Beer Company's revenue will grow by 2.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.5% today to 6.6% in 3 years time.
• Analysts expect earnings to reach $145.3 million (and earnings per share of $14.22) by about April 2028, up from $71.3 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $124.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.3x on those 2028 earnings, down from 37.7x today. This future PE is lower than the current PE for the US Beverage industry at 25.5x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Boston Beer Company Future Earnings Per Share Growth

Risks

• The decline in the hard seltzer category, particularly the Truly brand, negatively impacts revenue and overall market share, necessitating increased advertising investment that may not yield immediate results.
  
• The macroeconomic environment, including inflationary pressures and reduced consumer confidence, could lead to lower demand and negatively affect revenue growth.
  
• Tariffs, particularly on aluminum and packaging materials, are anticipated to increase costs by an estimated $20 million to $30 million, potentially impacting net margins.
  
• The slowdown in Twisted Tea’s growth due to increased competition in the hard tea category and limited distribution gains could hinder revenue expansion and market penetration.
  
• Uncertain consumer behavior shifts influenced by health trends, moderation, and alternative leisure activities (e.g., online gambling, GLP-1 drugs) can further impact depletions and sales volume, affecting overall earnings.

Valuation

• The analysts have a consensus price target of $262.94 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 $328.0, and the most bearish reporting a price target of just $210.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.2 billion, earnings will come to $145.3 million, and it would be trading on a PE ratio of 17.3x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $246.52, the analyst price target of $262.94 is 6.2% higher. 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.