Boston Beer Co. downgraded on 'yet to bottom' seltzer category

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By Sam Boughedda

Boston Beer Co. (NYSE:SAM) was downgraded to Underperform from Hold, with its price target cut to $275 from $331 by Jefferies analysts in a note to clients Wednesday.

The analysts explained they are downgrading the stock with the hard seltzer category "yet to bottom," weighing on the company's EPS recovery and suggesting risk to Street estimates.

"We have included mid-teens (%) volume growth for Twisted Tea (~35% of mix) in '23 given our expectation of further distribution gains; however, SAM's top-line recovery remains largely tethered to stabilization in malt-based seltzers (< 45% of mix) where the blistering '19-20 growth rates are long gone given difficult YoY comps, RTD competition, on-premise recovery (category under-indexes), consumer fatigue (e.g., return to light beer), and higher consumer trial some five years into category's development," wrote the analysts.

The analysts added that the firm now forecasts 6% to 5% declines for the category in 2023 and over the next 3 to 5 years, which "likely portends further downside to Street estimates."

"We are below Street sales ests. in '24 (+2.4% JEF vs. +6.1% Street) on continued Truly YoY share losses (-500 / -465 / -330 bps in the latest 4/12 WE 12/3), troubled beer/cider portfolio, and subdued expectations for malt-based seltzers," they added. "Though Twisted Tea and Hard Mountain Dew (~1% of mix) are (+) drivers in '23, headwinds elsewhere in SAM's portfolio are likely to minimize any upside. Our FY23/24 EPS estimates of $10.56/$13.09 are 8%/9% below consensus estimates."

Despite the downgrade, Boston Beer shares have gained 2% so far in Wednesday's session.