Take a Sip of Boston Beer in 2014

With a fantastic 2013 already behind it, Boston Beer Company has stumbled into 2014 but nonetheless should remain the top growth prospect in the beer industry.

Jan 11, 2014 at 7:00AM

Thanks to impressive top-and bottom-line growth fueled by the increasing popularity of craft beer, The Boston Beer Company (NYSE:SAM) had a tremendous 2013. Shares of the company soared more than 70% last year and crushed the returns of larger competitors like Anheuser Busch InBev (NYSE:BUD) and Molson Coors Brewing Company (NYSE:TAP).

However, in recent weeks, shares of Boston Beer have corrected sharply, which means they are worth extra consideration at their current levels.

Increasing business diversity
While best known for its signature Samuel Adams Boston Lager beer brand and its many variations, the company has also diversified its business mix in recent years. Boston Beer has found great success with two other brands, Twisted Tea and Angry Orchard. The former is Boston Beer's take on hard iced tea, and the latter is the company's take on hard cider.

The success of both brands has reduced the overall dependence of Boston Beer Company on its signature craft beer brands. However, the company has traditionally done well expanding the Samuel Adams lineup. With numerous seasonal offerings and limited editions, the Samuel Adams brand is ever-evolving. Additionally, Boston Beer introduced the first Sam Can last year, which allows the company's Samuel Adams drinks to be served in cans and in settings that do not allow glass bottles.

Industry-leading growth
Since Boston Beer is one of the smallest public brewers, it may come as no surprise that the company leads its much larger rivals in growth. The following is a breakdown of Boston Beer's projected growth rates for 2014 compared to those of Anheuser Busch InBev and Molson Coors Brewing Company: 

Company

Anheuser Busch

Boston Beer

Molson Coors

Revenue Growth 2014

11.6%

16.7%

2.4%

EPS Growth 2014

14.4%

19.1%

4.3%

Boston Beer leads its larger peers by a wide margin in terms of both revenue and earnings-per-share growth. It is the only listed company in the group that has projected growth above 15% in 2014.

Unfortunately, the company's superior growth comes at a steep price. Boston Beer's forward P/E of 34.41 is extremely elevated in comparison with Anheuser Busch InBev's forward P/E of 18.71 and Molson Coors' forward P/E of 13.2.

Additionally, Boston Beer does not currently pay a dividend, while both of its larger competitors do. Anheuser Busch InBev's dividend yield of 1.3% is solid, but lags behind Molson Coors' dividend yield of 2.3%.

Future growth drivers
Boston Beer's Alchemy & Science division is the company's research and development unit, which is dedicated to finding the next big thing in craft beer. Alchemy & Science is currently finalizing the acquisition of Coney Island Brewery, which will be the fourth beer brand in the unit's lineup behind Angel City Brewery, Traveler Beer Company, and the Just Beer Project. 

Besides creating and acquiring other craft beer brands, the success of Boston Beer is tied mainly to the popularity and future growth potential of craft beer in general. According to a recent report by the Brewer's Association, craft beer represented approximately 6% of the beer produced in the United States through the first half of 2013. 

Craft beer still makes up a very small portion of the domestic beer market and therefore the potential for further market share gains is substantial.

Take a sip
With shares of Boston Beer off to a rocky start in 2014, the time seems right for investors to consider the small brewer as a long-term growth investment. The company is still growing rapidly and remains one of the dominant forces in the fastest-growing segment of the nation's massive beer market.

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Philip Saglimbeni owns shares of Boston Beer. The Motley Fool recommends Boston Beer and Molson Coors Brewing Company. The Motley Fool owns shares of Boston Beer. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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