New Product Launches Like Sun Cruiser Will Strengthen Market Position

Key Takeaways

• Margin improvement through procurement savings, network optimization, and internal production boosts is positively impacting net margins and earnings.
  
• Focus on category-leading brands, strong innovations, and increased advertising investments are expected to support significant revenue and market share growth.
  
• Increasing competition, advertising needs, and societal shifts pose challenges to Boston Beer Company's market share, revenue growth, and product execution strategies.

Catalysts

Produces and sells alcohol beverages primarily in the United States.

• Boston Beer Company's multiyear margin enhancement plans are delivering improvements, with a 200 basis point gross margin expansion in 2024, which is expected to continue in 2025 through procurement savings, network optimization, and brewery performance. This is likely to impact net margins positively.
  
• The company is executing a strategy to focus on category-leading brands and launch strong innovations such as Sun Cruiser and expanded high-ABV offerings in hard tea and seltzer, which should support revenue growth.
  
• Boston Beer Company plans to significantly increase advertising investments across its portfolio to improve market share trends for brands like Twisted Tea and Truly, potentially leading to higher revenue and earnings.
  
• The company is expanding its distribution with plans for a national launch for new products like Sun Cruiser, targeting a tripling of distribution points, which could drive significant revenue growth.
  
• Boston Beer is improving operational efficiency by boosting internal production volumes and leveraging new systems like automated customer ordering and inventory management, which should enhance gross margins and earnings.

Boston Beer Company Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Boston Beer Company's revenue will grow by 2.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.0% today to 7.4% in 3 years time.
• Analysts expect earnings to reach $159.6 million (and earnings per share of $15.2) by about March 2028, up from $59.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $201 million in earnings, and the most bearish expecting $134.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.5x on those 2028 earnings, down from 43.4x today. This future PE is lower than the current PE for the US Beverage industry at 28.9x.
• Analysts expect the number of shares outstanding to decline by 6.07% 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 increasing competition in the beyond beer category, including spirits-based offerings and new entrants, could hinder Boston Beer Company's ability to capture market share and impact future revenue growth.
  
• The need for increased advertising investment, particularly in the first half of 2025, might initially dampen operating income growth, impacting net margins in the shorter term.
  
• Continued challenges in the hard seltzer category, particularly with Truly, could lead to declines in volume and revenue if corrective measures and marketing strategies do not improve its trajectory.
  
• Potential impacts from broader societal shifts, including health and wellness trends and the availability of cannabis products, could lead to changes in consumer behavior and affect overall alcoholic beverage consumption, impacting long-term revenue trends.
  
• There are execution risks associated with the national rollout of new products like Sun Cruiser, which might require significant resources and successful adoption to avoid negatively affecting revenues if the market response is tepid.

Valuation

• The analysts have a consensus price target of $273.714 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 $349.0, and the most bearish reporting a price target of just $214.0.
  
• 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 $159.6 million, and it would be trading on a PE ratio of 18.5x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $233.27, the analyst price target of $273.71 is 14.8% higher.
  
• 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.