For investors looking for a stable company trading at a low valuation, Molson Coors Beverage Company (TAP) shares continue to have contrarian appeal, suggests value investing specialist Bruce Kaser, editor of the industry-leading Cabot Undervalued Stocks Advisor.

The thesis for this company is straight-forward — a reasonably stable company whose shares sell at an overly discounted price. 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 produces relatively few of the fast-growing hard seltzers and other trendier beverages.

Our view is that the company’s revenues are resilient, it produces generous cash flow and is reducing its debt, traits that are value-accretive and underpriced by the market. A new CEO is helping improve its operating efficiency and expand carefully into more growthier products.

Molson reported disappointing fourth quarter results, with adjusted earnings per share of $0.40 declining 60% from a year ago and falling well short of the $0.77 consensus estimate. Revenues of $2.3 billion fell 8% from a year ago and were about 5% below estimates.

The shortfall appears to be directly related to the sluggish reopening of the European economies, along with higher commodity and marketing costs. Guidance appears conservative but investors weren’t interested, leading to a sell-off in TAP shares.

We believe the reopening combined with already-sturdy cash flow will drive the shares higher later in the year. The company will likely reinstate its dividend later this year, which could provide a 3.1% yield.

We see no change in the company’s longer-term prospects regardless of the earnings report, and now have a chance to buy more shares at a lower price.

Earnings estimates continued to fall, following the disappointing earnings report. TAP shares trade at 11.7x estimated 2021 earnings of $3.87 (down 1 cent this past week). This valuation is low, although not the stunning bargain from a few months ago.

On an EV/EBITDA basis, or enterprise value/cash operating profits, the shares trade for about 8.3x current year estimates, among the lowest valuations in the consumer staples group and well below other brewing companies.

Patience is the key with Molson Coors. We think the value is solid although it might take a year or two to be fully recognized by the market. TAP shares have about 31% upside to our $59 price target.

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