Molson Coors: Is a Turnaround On Tap?

11/26/2020 5:00 am EST


Bruce Kaser

Chief Analyst, Cabot Undervalued Stocks Advisor

The thesis for Molson Coors Beverage Company (TAP) is straightforward — a reasonably stable company whose shares sell at a highly discounted price, suggests Bruce Kaser, editor of Cabot Undervalued Stocks Advisor.

One of the world’s largest beverage companies, Molson Coors produces the highly recognized Coors, Molson, Miller, and Blue Moon brands as well as numerous local, craft and specialty beers. About two-thirds of its $10 billion in net revenues are produced in the United States, where it holds a 24% share of the beer market.

Investors primary worry about Molson Coors is its lack of meaningful (or any) revenue growth as it has relatively few of the fast-growing hard seltzers and other trendier beverages in its product portfolio.

So, indications of new revenues from alternative beverages, as well as resilience/recovery in its core beer volumes, would be positive. A new CEO is overseeing efforts to improve execution.

We anticipate that the company will resume paying a dividend mid-next year. A $0.35/share quarterly dividend is possible, which would provide a generous 3.1% yield on the current price.

Molson Coors recent results showed that the company is making progress with its turnaround and that investors underestimate this progress.

The company produced generous cash from operations and reduced its debt in the quarter. In many ways, these are the two most important statistics for the Molson Coors story.

The shares trade at 10.7x estimated 2020 earnings of $4.21 and 10.8x estimated 2021 earnings of $4.17. Both estimates ticked up from last week. These valuations are low.

On an EV/EBITDA basis, or enterprise value/cash operating profits, the shares trade for about 8.1x estimates, among the lowest valuations in the consumer staples group and well below other brewing companies.

For investors looking for a stable company trading at an unreasonably low valuation, TAP shares have considerable contrarian appeal. Patience is the key with Molson Coors shares. We think the value is solid although it might take a year or two to be fully recognized by the market.

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