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Credit Agricole Downgrades Boston Beer to ‘Underperform’

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Price movement of Boston Beer

Boston Beer Company (SAM) has a market cap of $2.3 billion. SAM fell by 12.2% to close at $175.21 per share as of March 8, 2016. The stock’s price movement on a weekly, monthly, and year-to-date (or YTD) basis is -7.3%, -2.1%, and -13.2%, respectively.

Currently, SAM is trading 7.1% below its 20-day moving average, 4.7% below its 50-day moving average, and 18.9% below its 200-day moving average.

The Vanguard Small-Cap ETF (VB) invests 0.08% of its holdings in Boston Beer. The ETF tracks the CRSP US Small Cap Index. The market-cap-weighted index includes the bottom 2%–15% of the investable universe. The YTD price movement of VB was -1.3% as of March 7, 2016.

The iShares Russell 2000 ETF (IWM) invests 0.15% of its holdings in Boston Beer. The ETF tracks a market-cap-weighted index of US small-cap stocks. The index selects stocks ranked 1,001–3,000 by market cap.

The market caps of Boston Beer’s competitors are as follows:

  • Constellation Brands (STZ) — $27.9 billion
  • Molson Coors Brewing Company (TAP) — $19.0 billion
  • Compania Cervecerias Unidas S.A.–ADR (CCU) — $3.9 billion
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Credit Agricole downgraded Boston Beer

Credit Agricole has downgraded Boston Beer’s rating to “underperform” from “outperform.” Also, Citi has initiated the coverage of Boston Beer with a “sell” rating and set the price target at $186.00 per share.

Performance of Boston Beer in recent 4Q15 and 2015

Boston Beer reported fiscal 4Q15 net revenue of $215.1 million, a fall of 1.2% compared to net revenue of $217.8 million in fiscal 4Q14. It sold 0.958 million barrels in fiscal 4Q15, compared to 0.983 million in fiscal 4Q14.

Its net income and EPS (earnings per share) fell to $16.1 million and $1.21, respectively, in fiscal 4Q15, compared to $19.1 million and $1.40, respectively, in fiscal 4Q14.

The year-to-date depletions through the six weeks ended February 6, 2016, fell by 3% compared to the prior year period.

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Fiscal 2015 results

In fiscal 2015, SAM reported net revenue of $959.9 million, a rise of 6.3% YoY (year-over-year). It sold 4.256 million barrels in fiscal 2015, a rise of 3.7% YoY. Its net income and EPS rose to $98.4 million and $7.25, respectively, in fiscal 2015, compared to $90.7 million and $6.69, respectively, in fiscal 2014.

Meanwhile, its cash and cash equivalents and inventories rose by 23.3% and 10.1%, respectively, in fiscal 2015. Its current ratio and debt-to-equity ratio rose to 2.0x and 0.40x, respectively, in fiscal 2015, compared to 1.9x and 0.39x, respectively, in fiscal 2014.

The price-to-earnings and price-to-book value ratios of Boston Beer were 24.0x and 4.9x, respectively, as of March 8, 2016.

Projections

The company has made the following projections for fiscal 2016:

  • EPS in the range of $7.60–$8.00
  • depletion and shipment percentage growth in the mid-single digits
  • national price to increase in the range of 1%–2%
  • gross margin in the range of 52%–54%
  • effective tax rate of ~37%
  • capital spending in the range of $60 million–$80 million, which is higher, depending on capital required to meet future growth
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