Shares of beer giant Molson Coors (TAP 2.54%) declined 4.8% on Tuesday.
While Molson Coors had already fallen following disappointing revenue numbers in its fourth-quarter earnings release last week, a prominent Wall Street analyst lowered his rating on the stock to the ignominious "Underperform" rating today, kicking the stock while it's down.
NYSE: TAP
Key Data Points
BofA goes from neutral to negative
Today, Bank of America analyst Peter Galbo downgraded Molson Coors from a "Neutral" rating to an "Underperform," while lowering his price target from $50 to $42. Molson Coors had ended yesterday's trading at $49.89.
An Underperform rating is pretty rare on Wall Street, so the implication seems fairly dire for the beer giant.
Galbo states that fourth-quarter results and the full-year outlook were weaker than expected, with no indications of when beer volume declines might stabilize. Galbo also pointed out that Molson Coors' high fixed costs and inflationary pressures are causing earnings to decline much more than revenue if volumes decline. For instance, although Molson's management forecast just flattish revenue for 2026 after a 4.8% revenue decline in 2025, that translated into a much uglier forecast: a 15% to 18% decline in adjusted EPS.
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Molson Coors is a risky value play
After today's decline, Molson Coors looks cheap on the surface, trading at around 10 times this year's earnings estimates, with a 3.9% dividend yield.
Nevertheless, the company also has a not-small $5.4 billion in net debt, good for 2.3 times its adjusted EBITDA.
While not an extremely high leverage ratio, a declining business with that level of debt likely isn't a recipe for a rapid turnaround. Alcohol consumption has been trending downwards overall, so while Molson Coors might not go bankrupt, the stock might also not appreciate much anytime soon unless those larger trends reverse.
