Investors in Molson Coors Brewing Co (NYSE: TAP ) have to be disappointed so far this year. TAP stock is down more than 22% so far in 2018 and more than 27% over the past 12 months. This is compared to the 4.25% year-to-date gain in the SPDR S&P 500 ETF Trust (NYSEARCA: SPY ). While Molson now yields 2.6%, investors have to be asking themselves if it's time to pass on this brew and look for a more refreshing stock.
I certainly won't make the case that Molson Coors is the best stock in the world to own. That said, it's far from the worst stock too.
While a similar peer in Anheuser Busch Inbev NV (ADR) (NYSE: BUD ) has been struggling too, others have been thriving. After a big decline, Boston Beer Company Inc (NYSE: SAM ) has doubled from its summer 2017 lows. Constellation Brands, Inc. (NYSE: STZ ) is no longer churning out the big gains it once was, but it's still doing well too. Diageo plc (ADR) (NYSE: DEO ) shouldn't be left out of the winner's circle either.
With that in mind, does it make sense to own TAP stock when we could own winners like this? For some, it may make sense to sell TAP and book their losses, only to roll into a similar name - avoiding the wash rule - and reap the benefits of an industry rebound. For others though, holding onto or buying Molson makes more sense. Let's look at TAP stock a little more closely.
Valuing Molson Coors Brewing Co
Analysts expect Molson Coors Brewing Co to earn $4.89 per share this year. That's up about 9.5% from the year prior and values TAP stock at 13 times this year's earnings. For 2019, analysts expect further earnings growth of 5.3%, despite essentially flat revenue growth this year and next.
Missing on earnings and revenue estimates last quarter marked another unimpressive three months of business. Management said there's "overall industry softness," an interesting remark given the success of some other companies. Admittedly, craft beers and Mexican cervezas are doing well, obviously at the expense of traditional pilsners.
That said, with a strong economy many consumers may feel more comfortable reaching for a bottle of Goose over Smirnoff or Johnny Walker over Jameson. In the same hand, perhaps picking up that 18-pack of Corona and grabbing a few limes is worth the extra few bucks vs. a case of Coors Light.
In any regard, there is some growth, however small it may be, and 13 times earnings isn't that expensive. But most investors would likely agree that the valuation isn't so low they feel they need to back up the truck. I believe the argument comes down to owning TAP stock or ABC - "ABC" being SAM, DEO, STZ or any other stock not currently stuck in a rut.
Right now, investors are clearly opting for "ABC" over TAP.
Trading TAP Stock
The fundamentals here are clearly mixed. Obviously Molson isn't going out of business tomorrow, but brand volume is on the decline and growth is simply mediocre. The one plus is that earnings are growing in spite of flat revenue growth, meaning its margins should expand in 2018 and 2019.
With that in mind, let's get a better look at the charts.
Click to Enlarge
There are a few takeaways when looking at the five-year weekly chart of TAP stock. First, TAP stock has been in a descending channel since the third quarter of 2016. In May, shares finally got out of the channel, but unfortunately, they broke below channel support.
In fact, it fell so far, Molson even broke below long-term support near $62, a level that I feel is the other important takeaway from the chart. TAP stock broke below this level and consolidated for a few weeks near $60. This week, bulls took charge and ran Molson Coors higher, a very constructive move.
Bulls now have a great risk/reward. By buying TAP stock here, they can use a stop-loss near $61 to $62. Investors who are comfortable with a higher risk tolerance can use this year's low as their stop-loss too. Look for resistance near $68, the backside of its previous channel support. It would be preferable to see TAP stock get back into its previous channel, and then back above the $72.50-ish level from there.
Overall, the average analyst price target sits near $75, roughly 20% above current levels.
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