Ending Pabst Contract And Premium Strategies Will Improve Operational Efficiency

Key Takeaways

• Termination of brewing agreement and premiumization efforts likely to boost future earnings and revenue growth via operational efficiency and pricing strategy.
  
• Strategic brand investments and share repurchases support revenue growth, market share gains, and improved earnings per share.
  
• Challenges in key markets, macroeconomic pressures, competition, and consumer behavior shifts could strain Molson Coors Beverage's revenue, margins, and profitability.

Catalysts

Manufactures, markets, and sells beer and other malt beverage products under various brands in the Americas, Europe, the Middle East, Africa, and the Asia Pacific.

• The termination of the Pabst contract brewing agreement is expected to improve brewery network effectiveness and margins, potentially boosting future earnings through increased operational efficiency and better product mix.
  
• Ongoing global pricing growth, along with premiumization efforts in regions like EMEA and APAC, are likely to contribute to future revenue growth and improved net sales revenue per hectoliter.
  
• Significant investment in core brands (e.g., Coors Banquet and Coors Light), as well as potential growth through expanded product offerings like Happy Thursday, could drive future revenue and market share gains.
  
• Enhanced financial flexibility through a healthy balance sheet and rating upgrades enables strategic investments and potential M&A, supporting long-term revenue and earnings growth.
  
• Share repurchase program execution is aimed at supporting underlying EPS growth by reducing share count, enhancing shareholder returns as a catalyst for future earnings per share improvements.

Molson Coors Beverage Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Molson Coors Beverage's revenue will decrease by 0.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.0% today to 9.8% in 3 years time.
• Analysts expect earnings to reach $1.1 billion (and earnings per share of $5.95) by about December 2027, up from $937.9 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $972 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.7x on those 2027 earnings, down from 13.0x 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 2.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.19%, as per the Simply Wall St company report.

Molson Coors Beverage Future Earnings Per Share Growth

Risks

• The U.S. market faced significant challenges, with financial volume down 17.9% and brand volume down 6.2%, primarily impacting revenue estimates for the future.
  
• The third quarter showed a 7.8% decrease in consolidated net sales revenue and a 6.2% decrease in underlying earnings per share, suggesting potential future pressure on revenue and earnings.
  
• The termination of the Pabst contract brewing agreement negatively impacted financial volumes, which may affect margins and efficiency, thereby influencing net margins and earnings.
  
• Macroeconomic pressures, including consumer value-seeking behaviors, have caused a shift in channel and pack preferences, potentially threatening brand loyalty and affecting net sales revenue.
  
• Increased competition in key markets like the U.K., coupled with promotional activities and consumer behavior shifts, could exert pressure on volumes and impact revenue and profitability over time.

Valuation

• The analysts have a consensus price target of $63.16 for Molson Coors Beverage 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 $75.0, and the most bearish reporting a price target of just $47.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $11.8 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 12.7x, assuming you use a discount rate of 6.2%.
• Given the current share price of $59.25, the analyst's price target of $63.16 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.