Local taverns may be hearing a lot of Hank Williams (Senior and Junior) singing "There's A Tear in My Beer." Boston Beer (NYSE:SAM), brewer of Samuel Adams Boston Lager, is down 15% after lowering earnings guidance and being downgraded by a major brokerage firm.
Prior to the last two days, shareholders were doing anything but crying. Look at the chart for the last year. From a close of $15.52 on August 26, 2003, the stock soared 81% to Tuesday's high of $27.95 a share. It was enough to get a grown man to shout, "Drinks for everyone!"
While looking at that chart, notice the sharp spike upward that started July 26. What happened then? Well, the big news in Boston was the Democratic National Convention. Could there be a link? Was there a lot of elbow-bending and people shouting, "Play it again, SAM"?
Sorry; the political link is only in the eye of the beholder. The run-up was caused by the company's strong second-quarter earnings report. Net income was up 74%, and the company was expecting double-digit earnings growth.
The three analysts following Boston Beer were projecting earnings of $0.98 to $1.03 a share for the fiscal year -- until now. The company is guiding them to $0.82 to $0.90 a share. That is still a double-digit increase from $0.70 a share last year, but is it worth 24 times trailing earnings?
Don't look at regional brewers Pyramid (NASDAQ:PMID) and Redhook Ale Brewery (NASDAQ:HOOK). They are experiencing declining profitability.
Coors Brewing (NYSE:RKY) is expected to deliver a 3.2% increase in earnings and trades 14 times earnings. Anheuser-Busch (NYSE:BUD) sells for 20 times earnings and is estimated to have an 11.7% increase in earnings. So, out of the bunch, only Anheuser-Busch sounds like it has the earnings growth to provide comparable pricing.
But do what Seth Jayson did, and look closer. Anheuser-Busch has a growing debt load that currently stands at $7.5 billion. Contrast that with Boston Beer's debt-free balance sheet. Boston Beer's shareholders are crying in their beer today because they see faster earnings growth and a rock-solid balance sheet not getting a premium price (like their beer) on Wall Street.
Fool contributor W.D. Crotty does not own stock in any of the companies mentioned but has been know to sample a beer or two.
