UPDATE: Goldman Sachs Downgrades Boston Beer Company (SAM) to Neutral
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Goldman Sachs analyst Bonnie Herzog downgraded Boston Beer Company (NYSE: SAM) from Buy to Neutral with a price target of $875.00 (from $1,550.00).
The analyst comments "We are very surprised by the magnitude of this quarter's miss which came in well below expectations despite mgmt's consistently confident tone as recently as our May 18 Global Staples Forum. SAM reported Q2 EPS of $4.75 (-2.7%), well below our/FactSet cons estimate of $6.97/$6.60 driven by weaker than expected shipment/depletion growth of 24.0%/27.4%, which were sharply below our 45.0%/49.7% ests. Given these results, mgmt lowered its guidance, now expecting shipments/depletions of +25-40% (vs 40-50% prior) and EPS of $18.00-$22.00 (vs $22.00-$26.00 prior). Clearly our expectations were wrong and we highlight the following areas: (1) The hard seltzer category slowdown is real (something we highlighted in our Beverage Bytes Beer Distributor survey) but more pronounced than we had originally thought given category confusion from overproliferation of SKUs and tough comps; (2) The on-premise channel for hard seltzers is growing but not as fast as we had thought - Mgmt confirmed Truly will continue to underindex on-premise for the foreseeable future unless Truly draft takes off; (3) Mgmt has low visibility in its own business - SAM has less visibility into the category (and is no longer forecasting this) as well as its own business which is in contrast to its own commentary as recently as May; (4) Truly Punch has not had the success we had thought - Mgmt confirmed the brand has not added as much volume as they had expected while cannibalizing its other brands more than anticipated; (5) Mgmt's new guidance for lower ad spend & capex suggests less confidence in the future hard seltzer opportunity & growth of its business; and (6) Mgmt's updated guidance range for shipment/depletion growth of +25-40% is wider than its previous +40-50% range - despite only 5 months left in the fiscal year, another point that mgmt has less visibility into its business than previously anticipated. Bottom line, we believe today's results could see investors question SAM's growth strategy and expect the stock to pull back as a result. We lower our FY21/FY22 EPS estimates by $3.92/$6.23 to $21.34/$29.02 and our price target by $675 to $875 implying an FY22 P/E multiple of 30.2x which we believe is deserved as it represents a ~10% premium to its broader alcoholic beverage peers. As such, we downgrade SAM to a Neutral rating (from Buy) and expect the stock could trade in a tight range over the near-term until there's some evidence of sustained improvement & visibility. Since we initiated on the stock with a Buy on April 1, 2020, the shares are +160.0% vs. the S&P 500 +76.8%."
Shares of Boston Beer Company closed at $947.54 yesterday.
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