By Sam Boughedda
Morgan Stanley analysts initiated coverage of Boston Beer Co. (NYSE:SAM) at Underweight with a $300 per share price target in a note on Tuesday.
The analysts stated that while the firm acknowledges that the company has "significant momentum" behind Twisted Tea and an "impressive innovation track record," they see a downside to 2023/24 consensus and to long-term growth expectations.
"Management argues that SAM could grow ~5% long term just by holding share in beyond beer, and by ~10% with successful innovation; we think that holding share looks challenging given SAM's outsized exposure to the declining malt-based hard seltzer sub-category (~40% of volumes), and the dizzying array of new competitive entries in the broader beyond beer category," wrote the analysts.
They added that they see a downside to consensus in 2023 as Morgan Stanley expects the malt-based hard seltzer category to continue to decline and Truly to continue to lose share based on its new bottom-up model of the US beer market and its channel checks, which point to declining shelf space for the category and Truly in the spring resets.
"Even assuming continued robust (albeit slower) growth for Twisted Tea, we forecast SAM's volumes -2% in 2023 vs. the +2% Visible Alpha consensus, and EPS '23e of $10.80 vs. the $11.45 consensus, with our 2024e EPS 7.7% below consensus. While SAM's stock is down ~25% over the LTM and down ~70% from 2021 highs, we believe it is pricing in overly optimistic 7-8% long-term top line growth based on our reverse DCF vs. our 3-4% forecast. Additionally, despite SAM over-indexing to the declining malt-based hard seltzer category, the stock is trading at a 2024E P/E premium to growth names such as MNST and STZ, which have significantly higher LT growth rates and much better visibility," concluded the analysts.
Boston Beer shares declined over 2% during Tuesday's session.