Monday, September 30, 2013

Investing in Beer

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While giant brewers like Budweiser (BUD) and Molson Coors (TAP) still dominate the U.S. beer market, craft brewers have managed to carve out a decent sized niche for themselves reports Zacks Investment Research. And on a recent ‘fact finding mission’ that I took to the headquarters of Boston Beer Company (SAM) in Massachusetts, I can see why many have embraced these smaller brewers.

Not only do companies like SAM offer an arguably better beer, but you can tell that there is a great level of care put into the product as well. Many consumers have noticed the flavor—or at least the uniqueness-- and have allowed SAM to grow into the great position it finds itself in today.

Yet even with the solid level of growth that the company has seen so far, SAM makes up less than 1.5% of the total U.S. market, suggesting that Boston Beer clearly has plenty of room to grow. For this reason, and America’s current obsession with craft beer, this brewer of Boston Lager could be worth a closer look.

SAM in Focus

The growth for SAM can best be seen in the recent earnings estimate revision trends for the company. Analysts clearly like the craft beer story too, as not a single estimate has gone lower for SAM in the past 60 days, while when zeroing in on the current year, three estimates have gone up.

The magnitude of the increases has also been impressive, with the current year surging from $5/share 90 days ago, to the current level at $5.36/share. Current quarter estimates have also jumped, suggesting that analysts are quite bullish on the company’s prospects.

But don’t worry about SAM being able to live up to the hype, as the firm has a pretty solid track record at earnings time. It has beaten in three of the last four earnings release dates, while its Zacks ESP is positive, suggesting that it is well positioned to beat this quarter as well.

Thanks to these factors, SAM has earned itself a Zacks Rank #1 (Strong Buy), meaning that we are looking for some more outperformance in the weeks ahead. And considering how well SAM did following the last earnings report, this should definitely be a stock on your radar.

Not all craft beer is equal

While SAM is well positioned for further gains, it is important to remember that not all the stocks in the ‘beverages-alcoholic’ industry are as highly ranked. In fact, SAM is actually the cream of the crop from the Zacks Rank perspective, as it is the only one that has a #1 Rank.

Meanwhile, one of its top craft brew competitors, the Craft Brew Alliance (BREW) is one of just two stocks that has a Zacks Rank of 5 (Strong Sell) in this industry. So, if you are looking for a beer play in the craft space, you should probably look to SAM over BREW for hopes of better performance in this in-focus industry.

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