November 15, 2011 at 09:49 AM EST
Investors Drinking Coors Should Switch to Sam Adams
While Molson Coors (TAP) must battle it out in emerging markets for growth, Boston Beer (SAM) has plenty of market to gobble up here at home.

Women account for only 17% of beer consumed in the United Kingdom. In an effort to get more of them drinking beer, the U.K. division of Molson Coors (NYSE:TAP) is introducing Animée, a pink-colored libation with only 101 calories per bottle. According to Molson Coors, women want beer that’s less filling and less bitter. That might be so, but patronizing them by selling “girly” products likely won’t add up to a significant revenue boost — and could even turn some drinkers off. Molson Coors would be better off making the best beer it can.

This is but one example of a brewer that has lost its way. Investors should avoid its stock and instead buy shares in Samuel Adams maker The Boston Beer Co. (NYSE:SAM).

Quarterly Earnings

The high unemployment rate in the U.S. is having a profound effect upon Molson Coors’ business. Its third-quarter profits dropped 23% year-over-year to $197.4 million. Analysts were expecting $1.25 per share and TAP delivered $1.14. Molson Coors’ revenues were up 9% year-over-year to $954.4 million — higher than analyst expectations. However, its revenue increase was the result of foreign currency exchange and higher prices.

Particularly disappointing was Molson Coors’ joint venture with SAB Miller PLC, which sells beer in the U.S., most popularly under the Miller brand. Net income fell 44% year-over-year as a result of poor sales in its home market. Until the American economy improves, not much is going to change regarding its situation in the U.S.

Contrast this with Boston Beer, which saw its revenue increase 8% year-over-year to $134.8 million with a 9.2% gain in earnings per share to $1.19. Analysts were expecting $1.13 a share. Founder Jim Koch rightfully has reason to be happy with its future and the future of craft beer. Boston Beer anticipates full-year 2011 earnings per share will be at least $3.60 on the low end and potentially as high as $3.90. The analyst consensus is $3.68 per share, and chances are good that number will be revised higher in the coming weeks.

Craft beer producers continue to thrive in the U.S. while mainline producers like Molson Coors are being left in the dust. Since SAM announced first-quarter earnings Nov. 1, its stock is up 15%, most of which came on the next day of trading. Based on its Nov. 11 closing price of $99.36, it’s trading at a P/E ratio of 27.6. That’s not bad when you consider its core demographic of 21- to 35-year-old white males will grow substantially over the next five years. As a result of this growing fan base, revenues should grow 11% to 12% annually through 2015. Unlike Molson Coors, Boston Beer’s revenue growth will trickle down to the bottom line.


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