Credit Suisse Sees Boston Beer's Q3 Margins Improving On Pricing Benefits

Credit Suisse analyst Kaumil Gajrawala reiterated an Outperform rating on the shares of Boston Beer Co SAM and raised the price target to $405 from $385.
The analyst said the decline in Seltzer continues, but Twisted Tea’s momentum (+39%) gives him confidence that Boston can hit guidance.
He said margins in Q3 FY22 will rebound as Boston laps last year’s write-downs and sees the benefit of pricing. The analyst sees a 45% gross margin.
While new Truly growth expectations were still too optimistic, he cited, charges that hurt gross margin by nearly -1,400bp will not reoccur.
Boston Shares are down 30% year-to-date and trade at about 15 times NTM EBITDA, which is a premium to other beverage alcohol peers.
The analyst noted Boston is beginning to emerge from a period of under-earning due to Truly’s explosive growth.
He added that the forward expectations assume a return to historical profitability (18-20% EBITDA margin) as costs are optimized for normalized volumes.
Gajrawala thinks profitability rebound is happening on less co-packer volume, production efficiencies, lower input costs, and tailored media spend.
He listed a downturn in trade, share losses, and margin recovery as possible risk factors for the company.
Boston Beer is expected to report results on Oct. 20.
Price Action: SAM shares are trading higher by 0.90% at $353.83 on the last check Monday.

Momentum32.41

Growth81.08

Quality68.74

Value64.06

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