Molson Coors Beverage Company (TAP) is one of the world’s largest beverage companies, producing the highly recognized Coors, Molson, Miller and Blue Moon brands as well as numerous local, craft and specialty beers, notes Bruce Kaser, editor of Cabot Undervalued Stocks Advisor.

About two-thirds of its revenues come from the United States, where it holds a 24% market share. Investors worry about Molson Coors’ lack of revenue growth due to its relatively limited offerings of fast-growing hard seltzers and other trendier beverages.

Our thesis for this company is straight-forward — a reasonably stable company whose shares sell at an overly discounted price. Its revenues are resilient, it produces generous cash flow and is reducing its debt. A new CEO is helping improve its operating efficiency and expand carefully into more "growthier" products.

Molson Coors reported a good quarter; revenues rose 14% and were about 3% above the consensus estimate. Adjusted earnings of $0.81/share more than doubled from a weak year-ago profit but fell about 6% shy of the $0.86/share consensus estimate.

The company is recovering from the pandemic slowdown in beer consumption, particularly as sales outside of the Americas rose 57% compared to a year ago. Consumers also traded up to higher-priced Molson beverages, further boosting revenues.

Looking into 2022, the company is optimistic that it can continue to incrementally increase its sales about 5%, lift its profits by perhaps 8%, and generate around $1.0 billion in free cash flow.

This $1 billion has been and will likely continue to be a steady-state outcome for Molson — seemingly no matter how good or bad profits are, it generates this amount of cash. The company is remarkably stable in this regard, and provides us with the confidence to ride through periods of weak stock performance. From here, it is only a matter of the broad market joining us in that confidence and lifting the stock to our 69 target.

The stock remains cheap, particularly on an EV/EBITDA basis, or enterprise value/cash operating profits, where it trades at 8.6x estimated 2022 results, still among the lowest valuations in the consumer staples group and below other brewing companies. The company recently reinstated its dividend and the 2.7% dividend only adds to the appeal. We rate the stock a buy.

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