Molson Coors Stock Is Poised To Profit (NYSE:TAP)

It’s been a while since I last visited Molson Coors (NYSE:TAP) a year ago, and it appears the stock has held up well amidst what seemed like a couple years worth of volatility. Since my last bullish take on the stock in January of last year, TAP has given investors an 8% total return, far surpassing the 16% decline of the S&P 500 (SPY) over the same timeframe. In this article, I revisit the stock and highlight what makes it a good value buy at present, so let’s get started.

Why TAP?

Molson Coors is one of the largest global brewers, with a portfolio of well-known brands such as Coors, Miller, Carling, and Blue Moon. TAP benefits from its extensive distribution network with a strong presence in North America and Europe, which accounts for the majority of the global beer market, and generated $10.7 billion in sales over the trailing 12 months.

Brand recognition is a key advantage of TAP. This includes Coors Light, is one of the top-selling beers in America. Additionally, Molson Coors has a strong portfolio of craft and import brands, helping the company to appeal to a diverse set of customers. These attributes translate to moderate pricing power. As shown below, TAP scores an above average B profitability grade with Gross and EBITDA margins sitting above the sector median.

Meanwhile, TAP is demonstrating respectable growth with net sales rising by 8% YoY on a constant currency basis during the third quarter, driven by price increases and favorable product mix. Also encouraging, TAP is growing market share, as it earned the second highest overall dollar share gain in the U.S. across the beer industry, driven by brand volume growth in the key Miller Lite and Coors beer brands.

Looking forward, it appears the hard seltzer threat is held at bay, sales for this category has largely fizzled. This is supported by a recent report last month that indicated double digit 22% to 24% YoY declines for popular hart seltzer brands. Moreover, hart seltzer now claims just a 7.3% of the overall beer market, which is well off its peak level of 12%.

This gives TAP more time to grow its own hard seltzer, Topo Chico, which is the fastest growing hard seltzer brand in the U.S. Moreover, TAP’s emerging brands show plenty of promise. This includes its Simply Spiked Lemonade, which is the fastest growing new flavored alcohol beverage in the U.S. and Peroni, whose volumes were up in the double-digits in the last reported quarter. In addition, TAP’s relatively new European style lager, Madri, is now the number three brand in the UK beer market.

Moreover, analysts believe that TAP is now on firmer footing with the ability to deliver long term revenue growth and market share gains through consistent beer pricing and new categories. This is supported by a note from a Cowen industry analyst, stating that it is also positioned to capture consumer downtrading in an inflationary environment. The Cowen analysts also expects higher dividends and meaningful buybacks in 2024.

Importantly, it carries a BBB- investment grade rated balance sheet, and it yields a respectable 3%, which is well covered by a 41% payout ratio. The share price of $51.47 continues to be in value territory with a forward PE of 13.2, sitting below its normal PE of 15.0. Analysts expect around 6% EPS growth this year and have an average price target of $54.61, while Morningstar has a fair value estimate of $67.

Investor Takeaway

Molson Coors has a strong portfolio of familiar brands and new high growth brands that makes it appealing to consumers worldwide. It appears set to return to meaningful growth and consumer downtrading in the current inflationary environment should provide an extra boost. Given the attractive valuation, a solid dividend yield and promising outlook, TAP is worth considering for long-term investors at current levels.