Brewery Bets: Four Favorite Beer Makers

03/05/2018 5:00 am EST


Tyler Laundon

Editor, Cabot Small-Cap Confidential

The best beers can be hard to find. The best beer stocks can be even harder to find. Here is a little guide on where to find them in 2018, explains Tyler Laundon, editor of Wall Street's Best Daily.

Boston Beer (SAM) is a well-known brewer in Boston, MA, and has roughly 100 beers, flavored malt beverages and hard cider offerings under the Samuel Adams, Twisted Tea and Angry Orchard brands. The stock was on a slide until mid-2017 when Q2 earnings crushed expectations and money began to flow back in.

Revenue growth was a modest 1.3%, but EPS of $2.35 beat by $0.94. The company followed up the solid Q2 results in Q3, when EPS of $2.78 beat by $0.79 (revenue was down 2.5%).

Positive trends include sales growth in Truly Spiked & Sparkling hard water offerings, as well as Twisted Tea. And there has emerged a storyline that appears good for Boston Beer investors regardless of what happens.

If growth resumes, the stock should do well. If it doesn’t, the chance of a takeout goes up! I wouldn’t personally invest based on M&A potential as I think founder Jim Koch would like to keep the company independent. But you never know.

Analysts currently see revenue down 5% in 2017 but up 1% in 2018, while EPS is expected to drop 6% (to $6.41 in 2017) before bumping back up 9% (to $7.05) in 2018.

Craft Brewers Alliance (BREW) is a small cap craft brewing company that’s had mixed success over the years. The company owns a number of craft brew brands, including Redhook, Widmer Brothers, Kona Brewing, Long Hammer and Omission.

At the moment things appear to be going relatively well with revenue expected to be up 2% to 3% in 2017 and 2018, and EPS expected to jump 180% (to $0.14) in 2017 and 136% (to $0.36) in 2018. There has been some M&A chatter, with Anheuser-Busch InBev (BUD) rumored to be a potential acquirer.

Toronto-listed Brick Brewing (BRB) is a $122 million market cap company and is the largest Canadian-owned craft brewery in Ontario. It owns the brands, Waterloo and Laker, as well as exclusive Canadian rights to Seagram Coolers, LandShark and Margaritaville.

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It’s recently finished off an initiative to streamline operations by selling off two brewery facilities, including one in Waterloo in 2014 and, most recently in September 2017, its Formosa facility. The latter is projected to save $600,000 a year.

Through the company’s third quarter (ended October 29, 2017), revenue for the year was up 12.8%. Costs have been higher, so EPS has declined from $0.09 in the first nine months of last year to $0.06 this year.

We won’t get an update until Q4 results come out (the quarter ended January 31), which will probably be in late-March or early-April. But I suspect that trend should correct now that the Formosa facility is off the books.

Investors have come around to the name over the past couple of months and shares are trading near resistance, suggesting Q4 results could set the stock’s trajectory for the rest of 2018.

Toronto-listed Big Rock Brewery (BR) is based in Calgary, Alberta, and has been in the business for three decades. It has a number of beers and ciders that fall under the Big Rock brand. But it’s a tiny stock, with a market cap of under $40 million.

Over the last nine months the company has grown revenue by 8.5% to $35.5 million but increased the size of its loss to $-0.13 from $-0.02. The company’s margins have been pressured by a changing markup and grant structure in Alberta, which has increased the costs to manufacture beer above a certain volume.

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