Boston Beer Just Made a New York Acquisition

I've got a question for all you beer connoisseurs out there: What pairs better with a great craft brew than a delicious Coney Island hot dog?

Nothing, right? That's what I thought.

So it's safe to assume the folks in New York probably know a thing or two about what makes a good beer, right?

It should come as little surprise, then, that a recent SEC filing from Boston Beer  (NYSE: SAM  )  shows its Alchemy & Science division just quietly acquired all rights to the award-winning Coney Island craft beer brand from New York-based Shmaltz Brewing Company.

Image source: Shmaltz Brewing.

In addition to the brand, Boston Beer also bought some related brewery equipment, and entered into a two-year brewing services agreement with Shmaltz, under which the smaller company will continue producing "some of the beer to be sold under the Coney Island brand name" under license from A&S -- at least until Boston Beer can obtain the required permits to do so itself.

Finally, A&S also entered into an agreement with Shmaltz founder Jeremy Cowan, who has agreed to "advise A&S, as requested, on Coney Island matters, for a period of two years."

To be sure, Boston Beer and Shmaltz seem to be kindred spirits; Both companies sport an unusual enthusiasm for maintaining the integrity of their great brews, and both are relatively young companies -- Boston Beer was founded in 1985 and Shmaltz in 1996 -- at least compared to megabrand competitors like Anheuser Busch InBev (NYSE: BUD  ) and Miller Coors (NYSE: TAP  ) , the roots for which both reach back to the late 1800s.

But the rising threat from the craft beer movement certainly wasn't lost on the biggest names in the industry. In fact, in an effort to offset stagnant sales of its flagship Budweiser brand, AB InBev even went so far as to acquire a roughly one-third stake in Craft Brew Alliance (NASDAQ: BREW  ) , which itself is comprised of the Redhook, Widmer Brothers, and Kona Brewing Companies.

That's not to say Boston Beer hasn't continued to thrive in spite of its larger competition. Remember, earlier this month the stock rose around 13% in a single day after the company absolutely crushed expectations with its second-quarter earnings results, which were largely driven by the outstanding performance of the company's popular Samuel Adams Summer Lager.

And this isn't even the first time Boston Beer has ventured outside its core brand to diversify revenue streams. Remember, the company also owns the Angry Orchard Hard Cider brand, which helped prop up the comparatively disappointing performance from Boston Beer's spring seasonal selections in the first quarter.

As it stands, however, shares of Boston Beer have still more than doubled over the past year and currently trade just below their all-time high, easily outpacing the returns of both the broader markets as well as every one of the aforementioned competing brewers:

SAM Total Return Price Chart

SAM Total Return Price data by YCharts.

And you know what? Even after its meteoric rise and with shares admittedly trading at a premium of nearly 45 times last year's earnings and 35 times next year's estimates, I still love Boston Beer from an investment perspective. After all, truly great companies tend to have a habit of repeatedly setting all-time highs, and there's a compelling case for not worrying about overvalued stocks over the long run, anyway.

In the end, today's acquisition makes it all too clear that Boston Beer will settle for nothing less than complete domination of America's substantial beer market, and that's something I've long remained convinced is firmly within its reach.

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Read/Post Comments (5) | Recommend This Article (7)

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  • Report this Comment On August 27, 2013, at 10:16 AM, whodidntante wrote:

    Whole heartedly agree with your conclusion... looking for any dip to add to my position, particularly while Cramer is recommending ringing the register on this issue...

  • Report this Comment On August 27, 2013, at 2:12 PM, strelna wrote:

    I think you have to be very clear about 'not worrying about overvalued stocks' (link, above). The question on the table is a simple one and I often reiterate it to TMFers: what would you not pay for X?

    Logically, that figure must exist or you are a madman! Or at least dangerously profligate. So the next question follows: why would you not pay that figure?

    I do not think avoiding the question of valuation when it comes to outstanding companies is useful. The above questions obviously need an answer.

    I found a way of answering them and I think others should too. It often means that stock in a company routinely described as 'overvalued' can be bought, but hey, there's a limit. Unless of course you want to get slammed. Sure, your purchase may work out after a year or two or three just fine - but what a lot of sleepless nights and self-recrimination!

    I am not saying you should sell if you are way ahead of the game. But a purchase based on excellent criteria but without limit? I don't think so.

    What would you not pay for... ? Why would you not pay it?

  • Report this Comment On August 27, 2013, at 9:23 PM, powersatch wrote:

    What is the difference between molson coors and miller coors?

  • Report this Comment On August 28, 2013, at 6:50 PM, XMFAimeeD wrote:

    MillerCoors is the North American joint venture between SAB Miller and MolsonCoors.

  • Report this Comment On August 29, 2013, at 12:30 PM, Mathman6577 wrote:

    Boston Beer has been very good to me. Plus they make a great beer ;)

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