Shares of Boston Beer (SAM +0.05%) rose more than 6% during intraday trading Wednesday after receiving an upgrade from Goldman Sachs analyst Judy Hong. Hong, for her part, admitted the firm had underestimated sales of Boston Beer's Angry Orchard hard cider brand, saying they now expect potentially higher-volume growth from the company going forward.
As a result, while noting the stock had risen 45% over the past year (versus 24% for the S&P 500), Goldman also changed its rating on Boston Beer from "sell" to "neutral," simultaneously placing a $162 price target on the stock. After today's pop, however, that's still lower than Boston Beer's current share price of around $166.
What's a beer-loving investor to do?
Remember, early last month, shares of Boston Beer plummeted more than 11% in a single day after the company posted less-than-palatable first-quarter earnings, during which net income missed analysts expectations after falling 8%, even while revenue grew an impressive 20% year over year during the same period.
Nonetheless, despite Boston Beer's relatively rich valuation at nearly 34 times trailing earnings at the time, I remained optimistic considering the miss was primarily the result of a weak spring seasonal program, which failed to meet Boston Beer's expectations. Besides,the company had already moved on to its strong-selling Summer Ale in most markets, and the company's first-ever brews to come packaged in its innovative new cans were about to hit store shelves.
However, it's worth noting that the folks at Anheuser-Busch InBev (BUD +2.14%) have also released their own cool (albeit less practical) new can in an effort to stifle the impressive growth of smaller brands at the expense of their flagship Budweiser beers. Remember, last quarter AB-InBev only managed to grow revenues 1.5% year over year, while total beer volumes actually declined 4%.
Consequently, AB-InBev is looking for growth wherever it can find it. Most notably considering its significant stake in Craft Brew Alliance, then, you can bet the popular market segment certainly won't be getting any less crowded for Boston Beer in the near future.
Foolish final thoughts
Even so, that won't stop the still-profitable Boston Beer from continuing to make capital improvements in its brewing, packaging, and supply chain capabilities to sustain its top-line growth for the foreseeable future. Boston Beer remains the single largest remaining American-owned brewery -- an advantage which I think many investors don't fully appreciate -- and the company has only touched the tip of the iceberg with regard to its ambitious long-term expansion plans.
All things considered, then, while shares of Boston Beer still look pricey at more than 38 times trailing earnings, I remain convinced that patient long-term investors who buy now will still be pleased with the end result.
