Molson Coors Brewing Company (TAP): Good Product But An Expensive Stock

Valuation

Molson Coors trades for 14.5 times TTM earnings, which are forecast to rise by around 5% annually over the next several years.  I personally think that the stock is a bit overpriced right now, with slow growth and about $1 billion in net debt.  Unless the company provides new growth plans or a rosier outlook for the next several years, I actually think we’ll see a pullback to the lower end of the trading range mentioned earlier.

Anheuser-Busch InBev trades at 19.2 times earnings, however they are growing more aggressively by far.  Consensus estimates call for earnings to rise at a 14.3% average annual rate over the next three years, which more than justifies the higher valuation.

Frequent readers know my “valuation rule” to roughly estimate whether a stock is fairly valued.  Take the forward growth rate and double it.  This number should be more than the P/E multiple, unless the company has a gigantic cash position or other extenuating issues.  Anheuser-Busch Inbev qualifies.  Molson Coors, sadly, does not.

Even the Boston Beer Company looks more attractive as an investment.  The maker of Sam Adams trades at 31 times earnings, with a 15% forward growth rate and has about $50 million in cash and NO debt whatsoever.

Conclusion

As far as Molson Coors goes, my opinion is to basically “wait and see.”  In other words, I need the company to give me a reason to invest in it.  Although I believe they make a quality product, I need them to show me signs of growth comparable to their peers, or at least growth at a level that is on par with the valuation.

The article Good Product But An Expensive Stock originally appeared on Fool.com and is written by Matthew Frankel.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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