For the first time since the recession, shipments of American’s go-to alcoholic drink rose last year particularly for smaller craft beers, which according to the Brewers Association rose from 11.5 million barrels in 2011 to 13.2 million barrels in 2012. Beer sales have struggled in recent years particularly because the key consumers of beer are blue-collar males in their 20s, a segment that was hit particularly hard during the recession.
In light of the turnaround in the brewing industry and the solid performance of consumer staples stocks throughout the current bull market, brewers should prove to be profitable holdings moving forward. Furthermore, international brewers should also be considered given that increasing levels of disposable income in emerging markets should lead to greater consumption of consumer discretionary products such as beer.
Source: Beer Institute. Volumes Continued to Rise in the 2012 Calendar Year.
Five Brewers are highlighted in the table below. Companhia de Bebidas das Americas (ADR) (NYSE:ABV) is a name that most investors are likely not familiar with, they are not exclusively a brewer, selling other beverages such as soft drinks, iced tea and bottled water as well. Their operations focus in South America with AmBev Brazil generating 65% of the company’s revenue. Analyst estimates have been rising even as the stock has traded somewhat lower during the past quarter. Fourth quarter earnings exceeded estimates driven by improving margins and a lower effective tax rate. The company is not cheap, but boasts an impressive five-year annualized EPS growth of 26.12%. The company seems to be an excellent play on growth in South America, which has been robust even with a sluggish global economy.
Heineken NV is a household name and a very strong brand. It was somewhat difficult to find accurate information about the company and analyst’s earnings expectations are very scattered. The company generates 32% of its revenue from Western Europe, 12% from Central Europe, 25% from the Americas, 22% from Africa and 9% from the Asian Pacific Region. The company’s gross profit margin lags behind the other brands surveyed in the table, however, the margin has expanded from 16.5% in 2008 to 20.3% presently. If the profit margin continues to expand, the stock looks very reasonably priced and EBIT has increased by 50% over the prior four-year period. The trend of Heineken’s earnings is quite positive and combining this with the lowest valuation among peers makes the stock appear doubly attractive.
The Boston Beer Co Inc (NYSE:SAM) is a fantastic brand that I wish I had recommended one year ago. The brewers of Samuel Adams are poised to take advantage of both the rebounding trend in beer consumption and the increasing consumer preference for smaller brewers. I love everything about this company except for the price. At nearly 38 times trailing earnings the market has already discounted a large amount of earnings growth for the company. I recommend keeping SAM on your watch list, but its hard to get excited about buying the stock for more than 25 times trailing earnings.
The Molson Coors Brewing Company (NYSE:TAP) has had a great run recently and may be a good way to capitalize on the rebound in domestic brewing. However, the company’s performance has been uneven over the longer term and the lack of revenue growth and earnings growth over the previous five-year period is certainly enough to give one pause. At the present time, shares have risen strongly already anticipating an earnings consensus that could be difficult for the company to achieve without considerable strengthening of profit margins.
When considering all of the companies above Heineken appears to be the strongest buy. The recent trend in earnings growth has been robust and is backed by strong revenue growth as well. If this trend continues, the company seems likely to be trading at a lower forward earnings multiple than the consensus expectation. They are making strong strides in emerging markets and should be well situated to capitalize on growing consumption in those regions.
Furthermore, Heineken has the intangible asset of brand recognition that has been built by the company since it was first brewed in 1873. I propose a toast to all of these brewers, but especially Heineken. The company has outperformed the market over the past year and the past five years and it is expected that this outperformance will continue.
The article Beer Sales are Increasing in the United States – A Toast to Five Brewers originally appeared on Fool.com.
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