The Trend Isn't Your Friend; Sell Molson Coors

The Canadian beer market, much like the American beer market, is seeing a growth in craft products at the expense of established players. And one of the biggest established beer makers in Canada is Molson Coors Brewing Co TAP, Bereneberg's Javier Gonzalez Lastra and Matt Reid commented in an initiation note.

Molson is the second biggest beer company in Canada, with a 30-percent market share, but the company's two key brands, Coors Light and Molson Canadian, account for half of the company's total sales within the "structurally challenged category of premium light," the analysts wrote. As a whole, 75 percent of the company's profits are coming from challenged categories, including economy beer.

Accordingly, the firm initiates coverage of Molson's stock with a Sell rating and $78 price target.

Looking forward Molson needs to focus on running its operations more efficiently and generate sufficient cash to pay down its debt load and do so while avoiding declines in volume and sales, the analysts continued. Naturally, this will be difficult to accomplish as the beer market becomes even more fragmented over time which could result in a decision to "change the playbook," including aggressive pricing increases.

"We remain unconvinced, and even see more downside than upside risks to earnings forecasts in the medium term," the analysts added.

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