Markets were surprised this morning by word that Cowen managing director Vivien Azer had downgraded guidance on Boston Beer Co. (NYSE: SAM). Azer’s forecast target for the brewer is down to $1,000 from $1,250. The stock will open today at $918.65 per share, and the 52-week low is $290.02.
The new guidance suggests that instead of adding $520 million to Boston Beer’s bottom line, its Truly hard seltzer could instead comprise approximately $481 million in 2021 annual sales. But the company doesn’t provide segment data, so those projections are rough estimates based on earnings conference calls.
“While we were bullish on SAM’s relative positioning amid COVID-19, decelerating hard seltzer category growth and an intensifying competitive landscape leave us more cautious on the potential for positive earnings revisions,” opined Azer.
Where is the peak for SAM?
The industry has been waiting for any signal that perhaps the growth of hard seltzer will be slowing. The bears are hungry. With the exponential rise in SKUs, given launches of multiple Big Beer flavor multiples, the category may not be suffering as much as the ability of one or two brands to dominate.
The new guidance from Azer suggests that instead of a segment slowdown, Boston Beer is likely to be affected by increased competition.
Mark Anthony Brands’ White Claw and Boston Beer’s Truly have enjoyed a majority of market share by being early to market and having the ability to flex established distribution channels. But significant threats are mounting. Molson Coors (NYSE: TAP) and Anheuser-Busch (NYSE: BUD) have been fast-tracking product releases, and then there’s one major wild card: Topo Chico hard seltzer.
Topo Chico Wild Card
The Coca-Cola Company’s (NYSE: KO) entry into domestic alcoholic beverages is not to be taken lightly. The company’s marketing prowess and skilled execution allow it to often be late to the party, and then pass the crowd, as with its Dasani water. After Aquafina was launched by PepsiCo (NASDAQ: PEP) in 1994, it took Coke a full five years to introduce Dasani. That water brand is now the number 1 in market share in the US.
Coke partnered with Molson Coors for US distribution, a smart move considering the complications of the three-tier system of alcohol sales in this country. Molson Coors has licenses and permits in place, and is adept at navigating the regulatory environment, somewhat foreign to the maker of soft drinks.
Coca-Cola is directly distributing Topo Chico in international markets, however, where prohibition-era restrictions are non-existent.
Opening of On Premise Could be the Savior
Boston Beer will benefit significantly once bars and restaurants approach normalcy. On-premise sales have been negligible since the coronavirus pandemic resulted in social distancing laws and sentiment. The industry is hopeful that vaccines from Pfizer and Moderna will soon slow the spread of Covid-19 and thereby encourage Americans to once again drink socially.
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