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Zack’s Bear of the Day: Molson Coors


When you think of the big domestic beer wars, you no doubt think of two names — Bud vs. Miller — and boring, bland-tasting beverages with enormous advertising budgets.

But there is a lot more going on under the surface as those behemoths of America’s legacy beer flavors battle it out to attract the taste buds of younger, more-discerning palates. And boy is it hard trying to keep track of who owns and bottles what brands these days!

Molson Coors Brewing Company (NYSE:TAP) is the fifth-largest brewer in the world, operating mainly in Canada where it enjoys 36% share of the suds market. In the US it still maintains about 28% market share as it operates through MillerCoors, a joint venture 42% owned by Molson Coors and 58% owned by SABMiller, the global beverage giant born out of South Africa in 1895.

Molson Coors key brands include Coors Light, Keystone, Molson Canadian, and the Blue Moon family of mass-produced “craft” beers, if there is such a thing.

Who Owns What?

SAB acquired the Miller Brewing Company in 2002. Then in 2008, they created the MillerCoors joint venture with Molson Coors.

While there is chatter about Molson Coors one day acquiring the 58% of MillerCoors it does not own, right now the company may be wary about taking on too much more debt to do so.

And last week’s earnings report gave analysts something else to focus on: lowering EPS estimates enough to drop TAP to a Zacks #5 Rank Strong Sell.

2015 full-year EPS projections fell from $4.21 to $3.87 in the past week. Even 30 days ago, the consensus was closer to $4.30. 2016 estimates dropped from $4.47 to $4.11, with the consensus at $4.53 last month.

If investors are not focused on the fate of MillerCoors, these downward estimate revisions should dominate concerns and could keep pressure on shares of TAP. But that certainly wasn’t the case on Tuesday the 17th when TAP rallied over 4% to nearly $76.

Maybe it was the 11% dividend increase and new 4-year, $1 billion stock repurchase program.

Or maybe investors like this probability-weighted math from analysts at Stifel Nicolaus…

Our $94 per share (price target for TAP) assigns a 40% probability on “business as usual” value of 16X 2016E EPS of $4.22, or $68 per share, and a 60% probability on a “100% ownership of MillerCoors” value of 18X run-rate EPS $6.17, or $111 per share.

Big Beer Gets Crafty

How does the $195 billion Anheuser-Busch (NYSE:BUD) compete with Molson Coors, who also distributes the Leinenkugel family of craft beers with MillerCoors?

BUD is all about ShockTop and Goose Island. Sort of eye-opening to realize that the “craft” beers in every cooler we see have the long arm of “big beer” behind them, pushing them.

So it looks like Big Beer will find a way to stay “on tap.” In an article on the “elitist” tastes of Millenials on CNBC.com last November, Nicholas Duva shared the insights of Ben Steinman, president of Beer Marketer’s Insights…

The big brewers are still on top and are likely to stay there for the foreseeable future. “They’re declining, but they’re still huge,” Steinman said. “Demise is too strong a word.”

The good news is that all this competition makes for great and affordable variety. The real craft brewers don’t want to get too popular anyway. BUD, or somebody with the name Miller, might buy them.

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