Molson Coors Brewing Co. (TAP) Quarterly Valuation

The alcoholic drink industry tends to perform well during recessions, and some investors will select companies from the industry purely for the concept of diversification; however, Intelligent Investors will bring each company to the same level and compare them against companies of other industries in a bottom-up stock selection method.  Intelligent Investors must stick to their investment techniques and look primarily at the fundamentals and actual results the company achieves.  A company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Molson Coors fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Molson Coors Brewing Company (MCBC) is a holding company. The Company operates in five business segments: Canada, the U.S., Central Europe, the U.K., and Molson Coors International (MCI). The Company is a brewer and has a portfolio of owned and partner brands, including signature brands Coors Light, Molson Canadian, Carling and Staropramen, as well as craft and specialty beers such as Blue Moon, Creemore Springs, Cobra and Doom Bar. Its other subsidiaries include: Molson Coors Canada (MCC), operating in Canada; MillerCoors LLC (MillerCoors) operating in the United States (U.S.); Molson Coors Brewing Company (UK) Limited (MCBC-UK, operating in the United Kingdom (U.K.) and the Republic of Ireland; Molson Coors International (MCI) operating in various other countries; and its other non-operating subsidiaries. In June 15, 2012, the Company acquired StarBev. In January 2013, it acquired Ireland’s Franciscan Well brewery.

TAP data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
6. Moderate PEmg ratio – PEmg is less than 20 – PASS
7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
3. Earnings Stability – positive earnings per share for at least 5 years – PASS
4. Dividend Record – currently pays a dividend – PASS
5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price	$52.41
MG Value	$50.90
MG Opinion	Fairly Valued
Value Based on 3% Growth	$49.77
Value Based on 0% Growth	$29.18
Market Implied Growth Rate	3.38%
Net Current Asset Value (NCAV)	-$32.02
PEmg	15.27
Current Ratio	0.70
PB Ratio	1.16

Balance Sheet – 9/28/2013

Current Assets	$1,596,100,000
Current Liabilities	$2,287,900,000
Total Debt	$3,253,500,000
Total Assets	$15,772,800,000
Intangible Assets	$9,389,000,000
Total Liabilities	$7,482,200,000
Outstanding Shares	183,800,000

Earnings Per Share

2013 (estimate)	$3.97
2012	$2.43
2011	$3.62
2010	$3.57
2009	$3.92
2008	$2.16
2007	$2.84
2006	$2.16
2005	$1.44
2004	$2.59
2003	$2.39

Earnings Per Share – ModernGraham 

2013 (estimate)	$3.43
2012	$3.16
2011	$3.42
2010	$3.19
2009	$2.83
2008	$2.27

Dividend History

TAP Dividend data by YCharts

Conclusion:

Molson Coors is an intriguing company to both Defensive Investors and Enterprising Investors, and should be kept on their watch lists.  For the Defensive Investor, the company only fails the current ratio requirement, and because the company is suitable for the Defensive Investor, it is also suitable for the Enterprising Investor.  Value investors interested in following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research, including a comparison of Molson Coors to other companies that pass the ModernGraham requirements.  From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $2.27 in 2008 to an estimated $3.43 for 2013.  This level of growth solidly supports the market’s implied estimate of 3.38% growth and the company would appear to be fairly valued by the ModernGraham valuation model at this time.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Molson Coors Brewing Co. (TAP)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Molson Coors Brewing Co. (TAP) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from the company website; this article is not affiliated with the company in any manner.