Alcohol & Tobacco Stocks

Boston Beer Company Inc Valuation – Initial Coverage $SAM

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  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 or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – August 2016.  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 stock analysis showing a specific look at how Boston Beer Company Inc (SAM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Boston Beer Company, Inc. (Boston Beer) is a craft brewer in the United States. The Company is engaged in the business of producing and selling alcohol beverages primarily in the domestic market and in international markets. The Company operates through two segments: Boston Beer Company segment and A&S Brewing Collaborative segment. The Boston Beer Company operating segment comprises of the Company’s Samuel Adams, Twisted Tea and Angry Orchard brands. The A&S Brewing Collaborative operating segment comprises of The Traveler Beer Company, Coney Island Brewing Company, Angel City Brewing Company and Concrete Beach Brewing Company. It sells over 60 beers under the Samuel Adams and the Sam Adams brand names, over 10 flavored malt beverages under the Twisted Tea brand name, over 10 hard cider beverages under the Angry Orchard brand name and approximately 40 beers under over four of the brand names of its subsidiary, A&S Brewing Collaborative LLC, under its trade name Alchemy & Science.

SAM Chart

SAM data by YCharts

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

moderngraham-valuation-of-sam-november-2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $2,201,305,976 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.92 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 373.00% Pass
6. Moderate PEmg Ratio PEmg < 20 27.35 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.86 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.92 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

sam-value-chart-november-2016

EPSmg $6.32
MG Growth Estimate 10.12%
MG Value $181.77
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $91.71
MG Value based on 0% Growth $53.76
Market Implied Growth Rate 9.43%
Current Price $173.00
% of Intrinsic Value 95.17%

Boston Beer Company Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $3.78 in 2012 to an estimated $6.32 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 9.43% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Boston Beer Company Inc revealed the company was trading above its Graham Number of $70.97. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 27.35, which was below the industry average of 32.42, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $2.16.

Boston Beer Company Inc receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

sam-charts-november-2016

Net Current Asset Value (NCAV) $2.16
Graham Number $70.97
PEmg 27.35
Current Ratio 1.92
PB Ratio 4.86
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Useful Links:

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/16/2016
Total Current Assets $204,551,000
Total Current Liabilities $106,289,000
Long-Term Debt $0
Total Assets $627,495,000
Intangible Assets $3,683,000
Total Liabilities $177,252,000
Shares Outstanding (Diluted Average) 12,641,000

Earnings Per Share History

Next Fiscal Year Estimate $6.21
Dec2015 $7.25
Dec2014 $6.69
Dec2013 $5.18
Dec2012 $4.39
Dec2011 $4.81
Dec2010 $3.52
Dec2009 $2.17
Dec2008 $0.56
Dec2007 $1.53
Dec2006 $1.27
Dec2005 $1.07
Dec2004 $0.86
Dec2003 $0.70
Dec2002 $0.52
Dec2001 $0.47
Dec2000 $0.62
Dec1999 $0.54
Dec1998 $0.39
Dec1997 $0.37
Dec1996 $0.41

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $6.32
Dec2015 $6.14
Dec2014 $5.37
Dec2013 $4.47
Dec2012 $3.78
Dec2011 $3.15
Dec2010 $2.15
Dec2009 $1.42
Dec2008 $1.05
Dec2007 $1.22
Dec2006 $1.01
Dec2005 $0.83
Dec2004 $0.68
Dec2003 $0.58
Dec2002 $0.52
Dec2001 $0.51
Dec2000 $0.51

Recommended Reading:

Other ModernGraham posts about the company

None.  This is the first time ModernGraham has covered the company.

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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