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CFRA analyst Garrett Nelson raised Molson Coors’ rating to Strong Buy from Buy.
The time of dreams
Molson Coors Beverages
closed the week up more than 4% after receiving a second analyst update on Friday as it picks up more Bud Light business. But don’t count
Anheuser-Busch InBev
Again.
On Friday, CFRA analyst Garrett Nelson raised his rating on
Molson Coors
(ticker: TAP) at Strong Buy from Buy, and its price target of $10 to $80.
The move comes as Nelson expects “another earnings overshoot and full-year guidance boost now seems very likely given recent dramatic market share gains in North America.” for the company’s leading brands Miller Lite and Coors Light (+13% over the past two months) from the ongoing consumer backlash against competitor Bud Light.
There has been debate over how long Molson Coors brands can benefit from the Bud Light brouhaha – in which the brand’s partnership with transgender influencer Dylan Mulvaney has sparked a backlash. Subsequent decisions by the management of AB InBev (ticker: BUD) have aggravated the situation, even among the company’s own distributors.
Still, Nelson argues that the recovery looks durable and the impact of the situation on earnings remains underestimated by investors. It raised its Molson Coors full-year earnings estimate for this year and next to $4.85 and $4.95, respectively, from $4.55 and $4.70 previously.
He is not alone. On Tuesday, BofA Securities also upgraded Molson Coors, albeit neutral, citing market share gains. A week ago, TD Cowen analyst Vivien Azer reiterated his bullish stance on Molson Coors, citing its enduring market share momentum.
That said, AB InBev’s bulls aren’t backing down either. This is largely because AB InBev and Molson Coors can still be winners in a global sense. As Barrons previously noted, Bud Light’s blunders are like a storm in a teapot, given AB InBev’s global growth. The Wall Street Journal also highlighted the buying opportunity.
“Consider that the volume decline in the United States in the first three weeks of April amounted to about 1% of [AB InBev’s global volume.] The incident is strictly a US issue,” Dave Novosel of Gimme Credit wrote on Friday.
He notes that the company only makes about 28% of its sales in North America and an even smaller share in the United States.
“Of all of its geographic segments, we expect North America to be the slowest growing region in 2023, with South and Central Americas providing the majority of the increase,” Novosel wrote. “We estimate that AB InBev will generate nearly $62 billion in revenue this year, allowing it to easily absorb an impact of this magnitude.”
Meanwhile, lost in the culture wars, the fact that AB InBev’s global organic growth trajectory appears intact, while slowing inflation looks set to improve margins and the company’s leverage declines to as it pays off its debt.
All of these factors led Novosel to confirm its buy recommendation on the stock, along with some optimism about the future.
“We think it’s likely that many of these displaced Bud Light drinkers will return, particularly if the company declines to carve out a position in the controversy and focuses more on the characteristics of the beer itself,” Novosel wrote.
Or as Homer Simpson so succinctly put it: “Here is alcohol: the cause and the solution to all of life’s problems.”
Write to Teresa Rivas at teresa.rivas@barrons.com