Despite challenges like fluctuating consumer demand, the pandemic, and soaring inflation, Boston Beer Company (SAM) has transformed into a diverse alcohol beverage enterprise with $2 billion in revenues. Rumors of potential acquisition interest by Suntory Holdings, Heineken, or Molson Coors have remained unconfirmed. However, they have recently increased the share price and could catalyze further price movement. The company’s Q2 results missed revenue and earnings expectations, leading to a revised guidance that reflects softer category performance.
Yet, progress in operational efficiency has allowed the company to maintain earnings guidance and position itself well to capture a more significant upside when consumer spending expands. Investors may want to add this to the watch list and look for further progress in the company’s transformation efforts, especially on the top and bottom lines.
Boston Beer Company’s Progressing Transformation
The Boston Beer Company produces and sells a wide range of alcoholic beverages, including beers, hard ciders, flavored malt beverages, and hard seltzers. These products are sold under brands like Samuel Adams, Twisted Tea, Truly, Angry Orchard, Dogfish Head, Angel City, and Coney Island. The company markets its products through a wholesaler network in the U.S. and to wholesalers, importers, or other agencies globally.
The company’s new CEO, Michael Spillane, has committed to transforming the organization, enhancing all aspects of execution, unlocking more revenue by improving margins while reducing costs, and launching new products to foster future growth. Early results are positive, with the firm improving its gross margin initiatives and a year-to-date margin expansion of over 250 basis points.
Boston Beer’s current strategy is focused on supporting growth-driving brands like Twisted Tea, Sun Cruiser, and Hard Mountain Dew. To boost the summer selling season and prepare for 2025, it allocated more advertising expenses to the second half of the year.
Boston Beer’s Recent Financial Results & Outlook
The company recently reported results for the second quarter of 2024. Revenue of $579.10 million missed analysts’ expectations of $597.33 million while marking a 4% year-over-year decrease. The company’s net revenue decrease was due to lower volumes, which was somewhat offset by pricing changes and reduced returns. On a brighter note, the gross margin rose to 46.0% from 45.4%, thanks to price increases, procurement savings, and lower return rates. Earnings per share of $4.39 fell short of analysts’ estimates of $5.00.
The company finished the quarter with a cash balance of $219.3 million and an unused balance on its $150.0 million line of credit, which management believes will be sufficient to fund future cash requirements.
Management has revised its full-year guidance for 2024. Depletions and shipment percentages are expected to decrease slightly or remain stable, while price increases are projected to be between 1% and 2%. Gross margins are estimated to stay within the range of 43% to 45%. The GAAP EPS is anticipated to fall between $7.00 to $11.00.
What Is the Price Target for SAM Stock?
The share price has fallen substantially from the COVID-era highs of $1290, though it has shown some resilience of late, climbing 2.5% in the past three months. It trades at the lower end of its 52-week price range of $254.40 – $395.52 and shows positive price momentum by trading above its 20-day (284.29) and 50-day (287.87) moving averages. With a P/S ratio of 1.715x, shares trade at a relative discount to the Beverage brewing industry, with an average P/S ratio of 2.13x.
Analysts following the company have taken a cautiously optimistic view of the stock. For instance, Piper Sandler analyst Michael Lavery recently lowered the price target on the shares from $344 to $325 while maintaining an Overweight rating, noting Hard Mountain Dew can be a catalyst in 2025, with shipments expected to give a volume boost in Q4 2024 ahead of early 2025 sales.
Based on ten analysts’ recommendations and price targets, Boston Beer is rated a Moderate Buy overall. The average price target for SAM stock is $321.10, representing a 15.01% upside potential from current levels.
SAM in Summary
Boston Beer Company has showcased resilience and versatility, evolving into a multi-faceted beverage leader. While recent financial results have not met expectations, improvements in gross margin initiatives and a considerable year-to-date margin expansion are positive signs. The company’s strategic pivot towards bolstering growth-driven brands, innovative product introduction, and a proactive advertising approach point to potential future growth.
Although the share price has been under pressure, it has driven the company into value territory (as evidenced by potential acquisition interest). Investors seeking a stake in an alcoholic beverage firm with upside growth potential may want to add Boston Beer Company to their watchlist.
