Analyst Says Dogfish Head 'Could Be Trophy Material' For Boston Beer

Boston Beer Company Inc SAM, the parent company of Sam Adams, reached an agreement to acquire Dogfish Head Brewery. This could prove to be "trophy material," according to Macquarie Research.

The Analyst

Macquarie analysts maintain a Neutral rating on Boston Beer with a price target lifted from $325 to $365.

The Thesis

Boston Beer paid around $300 million in cash and share issuance to acquire Dogfish, which the analysts said implies a multiple of 2.6 times estimated 2019 sales or $1,000 a barrel of beer. This represents a premium to Sam Adams' $885 average, but Dogfish sells at higher price points and should contribute seven to eight points to Boston Beer's sales growth in 2019.

The acquisition is also expected to be slightly accretive to 2019 earnings by 1.5 percent and rise to 6.5 percent accretive to earnings the following year. Cost saving synergies are expected to be realized in 2020 through sales and distribution costs and brewing.

Dogfish's sales are growing at a double-digit rate which is likely to "significantly" mitigate Boston Beer's declining volumes, according to Macquarie. As such, the acquisition of Dogfish and the addition of its founder Sam Alagione to the board will "bring fuel" to the company's growth story.

Price Action

Boston Beer's stock traded higher by 3 percent at $343 per share Friday afternoon.

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Photo credit: Adam Barhan, Flickr