Can Sam Adams Beat Back the Competition?

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Boston Beer's (NYSE: SAM  ) Samuel Adams brand helped to redefine beer and kick off the craft beer revolution in the United States. Success breeds competition, though, and while just a few years ago Boston Beer had a claim over most of the craft beer shelf, today the field is crowded. Can Boston Beer rise above the rest, or will it be squeezed between small local breweries on one side and global beer giants on the other? To help you decide, we've compiled a premium research report filled with everything you need to know about Boston Beer's prospects. Today, you can get a sneak peek at the various ways Boston Beer is seeking to stay relevant in a fast-changing craft brew market, detailing some of the opportunities that could propel Boston Beer even higher:

Increasing variety
While Boston Beer does not break out its sales by brand, management has mentioned "slight declines" in its core brands on nearly every conference call going back at least two years. Senior leaders are unwilling, when asked, to provide specific numbers, but independent data suggests that the reality may be worse than "slight declines." Market research firm SymphonyIRI Group indicates that between October 2011 and October 2012, Boston Lager volumes fell 9.3%, Samuel Adams Cherry Wheat volumes fell 10.3%, and Samuel Adams Light dropped a staggering 24.5%. If this is too bleak a picture, Jim Koch hasn't done anything to dispel that concern.

What management has pointed out, quite rightly, is that strong sales of seasonal brews, specialty beers, Twisted Tea malt beverages, and Angry Orchard hard cider have more than offset these losses. This points to a broader trend: Craft beer drinkers like to enjoy a wide variety of styles. What's new is interesting, and what's old is not.

Boston Beer is well aware of this and has taken steps to ensure beer drinkers always see something new under the Sam Adams umbrella. In 2011, the company brewed one hundred distinct styles of beer, serving 54 to its customers, 23 of which were brand new. Seasonal beers, variety packs, and special Brewmaster's series beers support the earnings of the entire Samuel Adams line. As the craft beer market begins to resemble a fashion industry more than the dependable staple that beer is often thought to be, Boston Beer is faced with a new complex of opportunities and challenges.

On the plus side, as consumers become inundated with choice, the Samuel Adams brand may gain value as a mark of quality and consistency in a crowded field. The company has long put the caliber of its beer ahead of short-term balance sheet considerations, so each new style from Sam Adams should keep interest in the company high. Of course, just as in fashion, a misstep from Boston Beer on a new seasonal offering could turn consumers off the brand for several seasons.

Constantly producing new styles of beer in small batches also requires higher up-front capital costs, and prevents the company from gaining efficiency through production scale. In 2013, Boston Beer expects to spend about 10% of its revenue in capital investment, and projects capital investment to fall to about $30 million to 35 million thereafter, between 6% and 8% of revenue.

Potential acquisitions
So far, nearly all of Boston Beer's growth has come from its own brands, produced in-house. However, as the company seeks to grow its market share in an environment of fickle consumer tastes, one potential avenue for growth might be through friendly acquisitions. This would allow Boston Beer to leverage its scale by plugging small successful brands into its existing sales, marketing, and distribution networks, while also maintaining the variety that craft beer drinkers crave.

Boston Beer started what it calls a "craft brew incubator" in 2011, called Alchemy & Science, with the explicit mission to "uncover exceptional craft beers and bring them to a larger audience." Within three months, Alchemy & Science purchased Los Angeles-based Angel City Brewing Company and currently distributes Angel City beers locally -- and opened the brewery to the public in January 2013.

Within six months, Alchemy & Science had launched Curious Traveler shandy under the House of Shandy label, which is now available in select markets along the East Coast and the Midwest. Neither Angel City nor House of Shandy are marketed with any obvious connection to Sam Adams, and the company could be testing the waters for operating diverse beer brands independently. Boston Beer's debt-free balance sheet and more than $70 million in cash certainly give it the flexibility to embark on an acquisitions spree if the company thinks it can unlock value from smaller brewers.

We hope you enjoyed this sample of our new premium research report on Boston Beer, which also includes a breakdown of the most important areas investors need to watch, an analysis of the risks facing Boston Beer, and three key reasons to buy or sell the stock. To gain access to the complete report and a full year of analyst updates, just click here and keep reading.

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9/23/2016 4:02 PM
SAM $152.30 Up +0.98 +0.65%
Boston Beer CAPS Rating: ****