It's early October, and with October comes Oktoberfest and the
pleasure of beer drinking. Beer stocks have posted varied
returns over the past year, but there have been some outsized
gains. Boston Beer (
) has been the hottest and had rallied just over 118% at writing.
Craft Brew Alliance (
) was up about 71%, while Carlsberg (
) and SABMiller (
) lagged recording gains of 4.6% and 5.9% respectively. By
comparison, the S&P 500 ETF (
) had posted a gain of 16.7%.
Given the Oktoberfest season and some powerful investment
returns in the brewing industry, it might be time to look at
which brewer is the best investment. I'll leave the award
for the best tasting beer to you.
Looking at earnings:
The table below displays a list of major brewers.
Brewing is a global industry so there is a universe of
international names. The table displays the change in EPS
estimates over the past thirty days for this fiscal year and
next, expected earnings per share growth for the coming year, and
the Zacks Rank.
A Zacks Rank of # 1 is a Strong Buy and indicative of a
company seeing sharp upward momentum to earnings per share
estimates. A Zacks Rank #3 is a Hold, while a Zacks Rank #5
is a Strong Sell and consistent with a company seeing material
downward revisions to its earnings per share estimates. Most of
the names are Zacks Rank #3.
As indicated by the Zacks Rank #1, SAM has seen the largest
upward revision to earnings over the past thirty days.
Anheuser Bush (
) was the only other name to see earnings estimates revised
higher. No names have seen EPS estimate cut and the
remaining companies have seen steady analyst activity on
As a result, SAM and BUD seem to have the most favorable
momentum in earnings expectations.
One surprising aspect of the table is the outlook for earnings
per share growth. Despite its size, BUD is expected to post the
second largest sales growth of the group at 16.8%. The
earnings growth at SAM is less dynamic at 14.7%, while BREW has
the quickest earnings growth by a long shot at nearly 70%. Its
small size and the strong niche of craft beers are probably
fueling the growth. There are markets to penetrate and a recovery
in earnings is expected to take place after high operating
expenses in 2012.
Sales growth, gross margin, and dividend
The next table highlights sales growth, gross margin, and
dividend yields for the group. In another surprise, BUD is
expected to show the fastest revenue growth in the coming fiscal
year. It is growing slightly faster than SAM and well above
its large cap competitors. BREW had the third highest sales
Gross margin is a bit hard to analyze in a table, but BUD
stands out again as showing strength. Its recent gross
margin at 58.5% was above the 10 year median. Its gross
margin looks firm relative to SAM and TAP both outright and
relative to trend. BREW has seen its gross margin
ease back in recent quarters, but the overall level is high
compared to recent years. The reporting on SBMRY may make
it difficult to compare its gross margin with the group.
On the dividend front, Molson Coors (
) pays the highest dividend followed by BUD. SAM and BREW
do not pay dividends, but are smaller companies and focused on
growth. Based the combination of sales growth, gross margin, and
BUD seems to be the most attractive name.
The table below highlights three measures of valuation - the
PEG ratio, the 12 month forward PE ratio, and the price to sales
ratio. CABGY has the lowest PEG ratio and looks most
reasonably priced based on this metric. SMBRY and BUD
follow, while Heineken (
) and BREW look most expensive. Generally, the trade is paying a
premium for earnings in the sector. Notice that the median
PEG ratio is over 2.00 and the median 12 month forward PE ratio
On a 12 month forward earnings basis, TAP and CABGY are most
cheaply priced and trading well below the average and median of
the group. BREW and SAM are by far the most expensive.
Looking at the price to sales ratio, CABGY and BREW looks the
most inexpensive followed closely by HEINY. SAM and BUD are
If each brewer is assigned a number for its position in each
valuation measure and the numbers are averaged, CABGY (1.33) and
TAP (3.00) are the least expensive followed by SBMRY
(3.67). SAM (6.00) was the most expensive followed by BREW
(5.00) and BUD (4.67). A value of one was assigned to the
company with the most inexpensive valuation and a value of seven
was assigned to the company with the most expensive
The market seems to be paying up for growth. Loosely,
the companies that have the highest valuations have the largest
EPS growth rates.
When trying to come up with the best beer investment, it feels
like I'm in a beer tasting contest where the contestants' sport
both positive and negative attributes and it is difficult to call
a winner. Depending on your style and mood, the results can
differ. There is no silver bullet. Given the mix of
earnings growth and valuation, drinking beer may be more
pleasurable than investing in beer, but here are some final
Value hunters may be most attracted to CABGY. The stock
had the lowest valuation measures based on PEG ratios, 12 month
forward PE ratios, and price to sales ratios. Earnings
growth is expected to be respectable in the coming year at 12.4%,
but sales growth is slow and expected to rise just 3.82%.
The value may be linked to the outlook for slow sales growth.
A recovery in the European economy could be a surprise
benefit given the focus of operations.
Momentum players will be attracted to SAM given its strong
upward revision to earnings estimates, solid growth outlook and
strong stock price, but valuation is stretched. The
valuation would keep my portfolio from drinking this name.
SAM is a stock which could look tasty after a
BUD stands out as attractive when mixing the value and growth
picture together. Although it is a Zacks Rank 3 (Hold) it
has seen its earnings estimate revisions move higher and it
possesses a solid outlook for sales and earnings growth.
Stability in gross margin and its dividend are added
positives. The downside rests in BUD's valuation. It is not
cheap, which keeps it from being clearly crowned the king of
beers from an investment perspective.
CRAFT BREW ALLN (BREW): Free Stock Analysis
ANHEUSER-BU ADR (BUD): Free Stock Analysis
CARLSBERG A/S (CABGY): Get Free Report
HEINEKEN NV (HEINY): Get Free Report
BOSTON BEER INC (SAM): Free Stock Analysis
SABMILLER PLC (SBMRY): Get Free Report
SPDR-SP 500 TR (SPY): ETF Research Reports
MOLSON COORS-B (TAP): Free Stock Analysis
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