Boston Beer Co Inc (SAM), Molson Coors Brewing Company (TAP): Despite Good Growth, This Large Craft Brewer Looks Expensive

Since 2008, it has delivered as much as $570 million in cost savings and synergies. The company’s free cash flow rose by as much as 70%, from $508 million in 2008 to $865 million in 2012. In the next five years, it expects to save an additional $40 million to $60 million, including the synergies in a Central European deal. To drive the business forward, Molson Coors Brewing Company (NYSE:TAP) will focus on four main pillars: enhancing value-added innovation; more investment in power brands; gaining market share in the above premium” beer segment; cost reductions and commercial excellence.

Anheuser Busch Inbev SA (ADR) (NYSE:BUD)’s valuation stays in between. At $100 per share, AB InBev is worth $160.4 billion in market cap. The market values AB InBev at nearly 18 times its forward earnings. Investors will be excited about the company because of its global-leading position, accounting for 43% of the total global beer industry’s EBIT (earnings before interest and taxes). It also has the number-one position in three markets:  the U.S., Brazil and Mexico. In the largest global market, China, it ranks third.

Looking forward, AB InBev could continue to deliver decent results with its ongoing integration of Grupo Modelo. In the next three-to-four years, AB InBev expects to deliver around $1 billion of synergies. The cost of goods sold might account for 40% to 45% of the total savings, while the remaining 55% to 60% would come from operating expenses. Moreover, it plans to reduce the leverage level from 2.5 to 2 times net debt/EBITDA (earnings before interest, taxes, depreciation and amortization) by 2014.

Income investors might like AB InBev and Molson Coors Brewing Company (NYSE:TAP) with their decent dividend yields. While AB InBev offers investors dividends with a yield at 1.9%, Molson Coors’ dividend yield is higher at 2.4%. However, AB InBev has a lower payout ratio at 29%, whereas the payout ratio of Molson Coors is 41%. If AB InBev increases its payout ratio to the same payout ratio of Molson Coors, AB InBev would yield nearly 2.7%.

My Foolish take

Boston Beer could continue to deliver great growth in the future. However, it seems like the high future growth expectations are reflected in the stock’s trading price. If Boston Beer misses the expected growth, its stock will definitely sink. I would rather wait for a price correction before initiating a long position in this company. Among the three, I like AB InBev the most with its leading positions in markets around the world, a reasonable valuation and a decent dividend yield. AB InBev will generate good return for shareholders with its potential synergies with Grupo Modelo.

The article Despite Good Growth, This Large Craft Brewer Looks Expensive originally appeared on and is written by Anh HOANG.

Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Boston Beer and Molson Coors Brewing Company. The Motley Fool owns shares of Boston Beer. 

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