Macquarie Raises A Glass To Boston Beer, Upgrades After Q4 EPS Beat

Boston Beer Company Inc SAM is toasting a fourth-quarter bottom-line beat despite a top-line miss. The acheivement led one bear on the Street to upgrade the stock.

The Analyst

Macquarie Research analyst Caroline Levy upgraded Boston Beer from Underperform to Neutral and raised the price target from $260 to $275.

The Thesis

Boston Beer exceeded Macquarie’s gross margin estimates and profited from a lower-than-projected tax rate, Levy said in a Wednesday note.

The analyst expects the party to continue with three-year average sales and bottom-line growth of 9 percent and 11 percent, respectively.

The firm’s non-peer portfolio, in particular, is predicted to grow 23.5 percent this year alone.

“Despite increased competition in hard seltzers, we believe Truly (about 15 percent of sales) will maintain its share in a category that could double in 2019,” Levy said, forecasting 75-100-percent growth in the brand.

Boston Beer will leverage in-house Truly production this year to expand gross margins, she said.

“We believe management is better prepared than last year for the high demand of Truly and its production requirements,” the analyst said. “While third-party manufacturing will likely continue into 2019, SAM should be less reliant as capital projects come online that both increase capacity and drive capabilities for slim can production and other key needs.”

Macquarie expects double-digit growth in Twisted Tea sales to offset a possible slowdown in Angry Orchard. Boston Beer is also slated to gain from innovations appealing to the health-conscious consumer, Levy said.

“While these innovations may not move the needle for SAM in FY19, we believe the better-for-you trend has LT staying power and these brands provide SAM with a diversified platform to compete in the space."