Unlike most stocks, the past 12 months have not been too kind to Molson Coors Brewing Co (NYSE: TAP ). However, after reporting third quarter earnings, TAP stock finally has some pep in its step. Shares jumped 6.3% on Wednesday, closing at $80.45. This pop comes just days after shares made new 52-week lows.
Is now the time to drink up?
It's at least worth paying attention to. The company's fiscal third quarter earnings results were in line with expectations. Revenue of $2.88 billion missed analysts' expectations by $90 million. Was it the greatest showing? Not really. But being a large beer conglomerate makes it hard to post a massive upside surprise.
The most difficult thing about buying TAP stock is its competition. Not necessarily competitive pressure on its business, but rather, with the stock. Like TAP, Anheuser Busch Inbev NV (ADR) (NYSE: BUD ) stock has been struggling as well. Both are near their annual lows and look rather unspectacular at the moment.
However, the same cannot be said for companies like Diageo plc (ADR) (NYSE: DEO ) and Constellation Brands, Inc. (NYSE: STZ ). These two stocks continue to churn higher and higher. The companies' higher-end beers, wines and spirits are clearly in demand over lower-price alternatives. As a result of consumer habits, investors are sticking with what's hot and ditching what's not.
Apparently, it's one of the few times a cold one doesn't sounds good!
Anyway, with brands like Molson, Coors, Keystone, Miller and Red Dog, TAP stock is very much one I'd circle back to in a recession. People are going to drink beer in good times and in bad. Only during the latter, it's not going to be the high-end ones they're after.
TAP is trying, with mid-tier brands like Blue Moon and Leinenkugel. It's not Boston Beer Company Inc (NYSE: SAM ), but it's stepping out of its comfort zone. Particularly with a few others like Spark, Henry's Soda and various ciders.
Valuing TAP Stock
With one more quarter to go, analysts expect $4.32 in earnings per share for fiscal 2017. While that's about flat vs. last year, forecasts call for 13.9% earnings growth in 2018. That goes alongside 0.5% revenue growth this year and 1.6% next year.
Shares trade at about 18.6 times 2017 earnings estimates, which isn't great given the lack of growth. But at about 16.5 times earnings for almost 14% growth in 2018 is more reasonable.
The company carries over $11 billion in debt. While this isn't the most problematic observation, it does make up a large part of its $16 billion market cap. Given the industry standards on debt-to-equity and debt-to-asset ratios, TAP stock actually finds itself mostly in the middle.
Again I circle back to my biggest issue being around stock competition. If I want a stock in the industry, STZ or DEO would be my go-to. I do like TAP more than BUD or SAM, though. But even looking outside the beer space, there's more attractive stocks. At least in my eyes.
Companies like Bank of America Corp (NYSE: BAC ), Apple Inc. (NASDAQ: AAPL ) and even a name likeCelgene Corporation (NASDAQ: CELG ) have a better combination of growth and valuation . So it's not that TAP stock is necessarily a bad investment, it's just that there are more attractive picks at the moment.
Trading Molson Coors Stock
There is one exception to all of this, and that's on the charts. As you can see, TAP stock has been trapped in a depressing downward channel over the past 18 months or so. Currently the top of the channel is near $84, about 5% above current levels. Can Molson Coors stock push through?
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Notably, the 200-day simple moving average has been trending lower with this level of resistance. If TAP stock is able to push through these levels, it's definitely a buy for me. I love these setups, as previous resistance becomes support. If it fails as support, we can cut our losses with minimal damage. If support is not violated, these types of stocks can run a long ways before tiring out.
So the play? Wait for a breakout over $84 before getting long.
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