Fizzling Seltzer Sales Make Boston Beer an Unloved Midcap
(Bloomberg) -- Sales of hard seltzer are evaporating, turning Boston Beer Co. from a mid-cap favorite into one of the group’s most disliked stocks in 2021.
The maker of Samuel Adams beer and Truly Hard Seltzer tumbled as much as 8.8% Thursday, wiping out 15 months of gains and bringing its losses for the year to 48%. That makes it the worst performer in the S&P Midcap 400 Index for 2021, after the stock more than tripled in the two years prior as consumers stocked up on Truly and the company’s Twisted Tea.
Analysts have become increasingly less optimistic on the stock’s outlook, and the pessimism was bolstered by the company’s pulling its annual guidance late Wednesday, citing a severe slowdown in demand for hard seltzers.
Wall Street’s average share price estimate for Boston Beer has declined to $791.50, the lowest since August of last year. While that target implies returns of roughly 54% from current levels, analysts are split on the stock. Eight recommend the shares, while six have hold-equivalent ratings and two advise clients to sell the stock.
“We expect a continued slowdown of the hard seltzer category as growth normalizes and for SAM’s market share to be further affected by increased competition,” Cowen analyst Vivien Azer wrote in a note. “With over 70% of their portfolio almost exclusively off-premise, a potential recovery in bars and restaurants should be less impactful for the company.” Azer rates the stock underperform, with a price target of $400, a 34% drop from the current level.
Boston Beer tied its growth prospects to Truly, which had benefited from a consumer shift to the once red-hot trend of hard seltzers. The beverage accounts for about half of the company’s off-premise sales, up from 34% the year before, IRI data show.
Worries about slowing demand for hard seltzers leaked over to peers, with Anheuser-Busch InBev NV shares falling to a six-month low in Europe. Beverage can-maker stocks also have underperformed.
Even this summer, when sales of hard seltzer tend to pick up, Boston Beer saw weaker-than-anticipated demand for Truly, and total inventories soared to almost $250 million. The company expects to incur costs payable to third-party brewers, it said in a statement.
MKM Partners argued that a glut will likely require either product destruction or price discounting.
“We expect sharp negative seasonality following this Labor Day weekend,” wrote MKM analyst Bill Kirk. “Until new innovation replaces the growth from Truly, it will be difficult for investors to get excited.” He rates Boston Beer neutral, with a price target of $530.
Boston Beer’s almost 50% decline this year lags an 18% rise for the S&P Midcap 400 Index, while the Russell 3000 Index Brewers Subsector is down a more-muted 4.7%.
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