The Boston Beer Company, Inc. (NYSE:SAM) just released its latest quarterly report and things are not looking great. The price dropped from US$947 to US$700 shortly after, and investors kept selling off as the stock not trades around high US$650s. Let's go over what happened and what to expect moving forward.
The recently released earnings report provided some bleak guidance for the hard seltzer category. There are multiple possible factors regarding the anticipated slowdown:
- Household penetration will slow as the target audience becomes more saturated
- Inflation may prompt users to downgrade preferences to traditional light beer or lower cost alternatives
- Multiple new hard seltzer brands are pressuring market share
Let's take a look at the earnings numbers and what to expect moving forward.
Results showed a clear earnings miss, with US$603m revenue coming in 8.3% lower than what the analysts expected. Statutory earnings per share (EPS) of US$4.75 missed the mark, arriving some 28% below what was expected.
We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
After the latest results, the 14 analysts covering Boston Beer Company are now predicting revenues of US$2.34b in 2021. If met, this would reflect a meaningful 11% improvement in sales compared to the last 12 months.
Per-share earnings are expected to step up 11% to US$21.63. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$2.52b and earnings per share (EPS) of US$24.43 in 2021.
From this, we can see that sentiment has definitely become more bearish after the latest results, leading to lower revenue forecasts and a real cut to earnings per share estimates.
It'll come as no surprise then, to learn that the analysts have cut their price target 24% to US$1,015.
It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Boston Beer Company at US$1,500 per share, while the most bearish prices it at US$685. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates.
It's clear from the latest estimates that Boston Beer Company's rate of growth is expected to accelerate meaningfully, with the forecast 24% annualized revenue growth to the end of 2021 noticeably faster than its historical growth of 18% p.a. over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 5.5% annually. Factoring in the forecast acceleration in revenue, it's pretty clear that Boston Beer Company is expected to grow much faster than its industry.
Finally, there is a question for the rationality of the drop. Even though Boston Beer is a high growth and high return company, its valuation is very sensitive to changes in future growth rates - which makes it more risky. Further, it is engaged in a relatively new and growing industry, with a lot of new players popping out and changing trends. All of this, makes the product susceptible to changes in trends, consumer preferences, purchasing power, brand recognition and user retention.
On a positive note, the stock now has likely even more growth potential, since the company is in a good position to keep the growth going, albeit at a lower rate.
The Bottom Line
Analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Regrettably, they also downgraded their revenue estimates, but the latest forecasts still imply the business will grow faster than the wider industry.
The company needs to show investors where they will find new demand for their product, and what the strategy is going forward.
Furthermore, the analysts also cut their price targets and the market valuation adjusted. It may be some time before the stock starts picking up steam again.
With that in mind, we wouldn't be too quick to come to a conclusion on Boston Beer Company. Long-term earnings power is much more important than next year's profits. We have forecasts for Boston Beer Company going out to 2023, and you can see them free on our platform here.
You should always think about risks though. Case in point, we've spotted 2 warning signs for Boston Beer Company you should be aware of, and 1 of them is significant.
Simply Wall St analyst Goran Damchevski and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.