Which Beer Stock Should You Guzzle Down for Your Portfolio?

Lets face it, the beer and alcoholic beverage industry is not going away anytime soon, and we at the Motley Fool hope it never does. The industry is known to be full of steady growers that are shareholder friendly in their dividend and buyback programs.

Apr 17, 2014 at 11:06AM

The beer industry has a wide range of companies by market capitalization. Anheuser-Busch (NYSE:BUD) , Molson Coors Brewing Company (NYSE:TAP), and Boston Beer (NYSE:SAM) each have a market capitalization of $170 billion, $10.5 billion, and $3 billion, respectively. Anheuser-Busch has been a major player for years, making big acquisitions and growing its product line to keep up with the current craft beer craze. Boston Beer has been spending heavily on research and development, marketing, and introducing new products to keep hold of its first mover advantage in the craft industry. Molson Coors and Anheuser-Busch are more established, mature companies that possess a wide range of product offerings. Foolish investors can get a better idea of competitors in different life-cycle stages by looking at cash flow.

Earnings can be Misleading While Cash is King
Currently, the trailing twelve month P/E ratios for Anheuser-Busch, Boston Beer, and Molson Coors are 12.24, 46, and 19.14, respectively. P/E ratios can be somewhat misleading when comparing over a multi-year period due to one-time gains, charges, and revaluations. Investors today may be paying too much attention to short-term top and bottom line growth. For the long-term investor, it is beneficial to have companies that generate real cash from their business operations, increase shareholder returns, and spend wisely on upgrading their operations. Focusing on cash flow instead of P/E multiples provides more detail into how a company runs and how much cash is left over to be distributed to shareholders.

Wait, Free Cash Flow Can Increase My Returns?
Free Cash Flow (FCF) is the actual cash that would be available to the company's investors after making all investments necessary to maintain ordinary business operations. These are funds that can be distributed to equity and debt holders in the form of buybacks, dividends, and reducing debt. In other words, Foolish investors should love cash flow because cash flow leads to higher potential returns on investment.

FCF= Operating cash flow – Capital expenditures.

FCF in millions





Boston Beer





Molson Coors










All FCF figures for OCF and capex taken from most recent 10-k filings, or 20-f in BUD's case. 

Boston Beer's FCF has been on the decline the past four years, Molson Coors has been steadily growing, and Anheuser-Busch was growing up until 2013, which was slightly negative. To better understand what these numbers mean for Foolish investing, we can look at the FCF growth rates per year.

Growth in FCF




Boston Beer




Molson Coors








Boston Beer's FCF has decreased considerably over the past two years, but due to its life-cycle stage, it is not necessarily a bad thing. Molson Coors has been steadily growing FCF for the past four years, while Anheuser-Busch has gone from a high of 20.49% growth in the 2011 period all the way to barely negative territory in 2013.

Breaking Down Free Cash Flow
FCF can be broken down into its component parts for a better understanding. The two components of FCF are:

  1. Operating cash flow (OCF), which is the actual cash generated during ordinary business operations
  2. Capital expenditures (Capex), which are cash outlays used to upgrade or purchase new property, plant, and equipment.

Numbers in millions

OCF 2012

Capex 2012

Capex % of OCF 2012

OCF 2013

Capex 2013

Capex % of OCF 2013

Boston Beer







Molson Coors














Companies that are heavily investing in and growing their business, such as Boston Beer, will have a higher capex percentage than companies in more mature phases in their life-cycle. This is not to say that Molson Coors and Anheuser-Busch are not investing in their businesses--these companies are just not spending nearly as much on a percentage basis. They have done so in the past and ideally their investment has paid off with higher OCF.

Looking at the chart, Boston Beer's capex percentage of OCF has gone from 69% to just over 100% from 2012 to 2013. Molson Coors and Anheuser-Busch have hovered around the 22%-28% range, but Molson Coors has the lowest percentage based on this metric. This means Molson Coors and Anheuser-Busch will have more cash left over to fund buybacks, dividends, and reduce debt.

Boston Beer is spending heavily to increase capacity in their breweries and on additional kegs to store all that delicious beer. Their cash balance has decreased from $75 million in 2012 to nearly $50 million in 2013. Also, in the most recent 10-K, management has estimated 2014 capex to be between $160 million and $220 million. If the mid-range is taken, there is a growth rate estimate of 89% in capex from 2013. This will translate into even lower FCF unless they generate enough OCF to cover it, which is unlikely.

Molson Coors and Anheuser-Busch both pay a dividend and have the means to increase them. Anheuser-Busch is considerably larger than Molson Coors and will have a harder time growing FCF, as evidenced by the previous table.

Foolish Takeaway
On a free cash flow basis, Foolish investors should delve further into Molson Coors. Boston Beer may be the hot craze in craft beer at the moment, but those investments have not produced FCF growth, only a lofty share price which may not be warranted. Anheuser-Busch is considerably larger than the other companies, which has translated into slowed revenue and OCF growth. In this instance, cash is king and Molson Coors has sprung a leak.

6 stock picks poised for incredible growth
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Zach Friesner has no position in any stocks mentioned. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers