Alcohol & Tobacco Stocks

Boston Beer Company Inc Valuation – July 2018 $SAM

Company Profile (excerpt from Reuters): The Boston Beer Company, Inc., incorporated on August 17, 1995, 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 selected international markets. The Company operates through two segments: Boston Beer Company segment, and A&S Brewing Collaborative segment. The Boston Beer Company segment comprises of the Company’s Samuel Adams, Twisted Tea, Angry Orchard and Truly Spiked & Sparkling brands. The A&S Brewing Collaborative segment comprises of The Traveler Beer Company, Coney Island Brewing Company, Angel City Brewing Company and Concrete Beach Brewing Company. Both segments sell low alcohol beverages.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of SAM – July 2018

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 $3,519,063,712 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.75 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 106.76% Pass
6. Moderate PEmg Ratio PEmg < 20 42.01 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 8.20 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 1.75 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

EPSmg $7.20
MG Growth Estimate 5.14%
MG Value $135.34
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $104.47
MG Value based on 0% Growth $61.24
Market Implied Growth Rate 16.75%
Current Price $302.65
% of Intrinsic Value 223.63%

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 Overvalued after growing its EPSmg (normalized earnings) from $5.37 in 2014 to an estimated $7.2 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 16.75% 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 below the price.

At the time of valuation, further research into Boston Beer Company Inc revealed the company was trading above its Graham Number of $74.84. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 42.01, which was above the industry average of 24.56. Finally, the company was trading above its Net Current Asset Value (NCAV) of $2.7.

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

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $2.70
Graham Number $74.84
PEmg 42.01
Current Ratio 1.75
PB Ratio 8.20
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $174,903,000
Total Current Liabilities $99,923,000
Long-Term Debt $0
Total Assets $579,887,000
Intangible Assets $3,683,000
Total Liabilities $142,961,000
Shares Outstanding (Diluted Average) 11,831,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.83
Dec2017 $8.09
Dec2016 $6.79
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.20
Dec2017 $7.19
Dec2016 $6.52
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

Recommended Reading:

Other ModernGraham posts about the company

8 Best Stocks for Value Investors of the Week – 12/10/16
Boston Beer Company Inc Valuation – Initial Coverage $SAM

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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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