Molson Coors (NYSE: TAP) Pinned As A Winner In A Post-COVID Landscape

On Monday, Jefferies was out with a bullish upgrade to shares of beer maker and brewer Molson Coors (NYSE: TAP), moving them from Hold to a Buy rating. Even with shares having popped almost 50% in the past two months, they don’t believe current levels accurately reflect the recovery potential the stock has.

In a note to clients, they highlighted three key pillars of their bull thesis; "a) more ways to win in ’21 than any time in recent years (on-premise, strategic alliances, etc.); b) Street ’22 EPS estimates set at a low bar at -7% below pre-pandemic levels vs. +10-30% for our coverage. Our FY21-22 EPS estimates are +4%/+11% ahead of Street; c) Reinstitution of dividend likely in 1H21 (+ signal for portfolio)."

It’s likely that one of the reasons for Jefferies being so bullish on the company is that the fundamentals have managed to do so well in the past year despite so many things being against them on paper. It took a while to materialize but the stay-at-home trend precipitated by the COVID-19 pandemic has in many ways been a good thing for the likes of Molson and their peers. Figures from research house Nielsen showed at-home beverage sales skyrocketing the final quarter of last year. Heading into December, the month on month numbers had beer sales jumping more than 10%, which no doubt helped to fuel the recent rally.

Bright Days Ahead

Only last month, the Chicago headquartered company announced that they’d successfully increased production capacity by 400% for some of their more popular products like hard seltzers, sales of which have grown more than 100% year on year. It seems the worst is behind the industry and things are almost back to normal. October’s Q3 earnings report had Molson’s revenue down only 3% on the year, although still well ahead of analyst expectations.

On the longer-term chart, there’s no doubt that shares are still caught in an ugly downtrend that’s been in play since 2016. In the four plus years since, Molson shares have given up more than 50% of their value while the likes of the Boston Beer Company (NYSE: SAM), arguably one of their closest peers, have rallied more than 400%. However, for investors willing to pinch their noses this can in many ways add to the opportunity at hand. The name has been so beaten down that expectations are low and there’s a ton of potential for upside surprises like Jefferies has highlighted.

Getting Involved

If we look at the last two months alone, Molson stock is up 30% while Boston Beer is down 15%, an interesting reversal of fortunes at a time when beer sales are shooting up. Investors willing to buy into the recovery story can also tap into the 4.99% dividend yield which in and of itself is a juicy reward for taking on some extra risk.

Shares have traded sideways in the last few sessions as they’ve consolidated their Q4 gains right around their post-COVID highs. They’d previously traded down to multi-year lows but found a decent bit of support there which should give fresh investors confidence in an entry around these levels. The last time they moved up from here they didn’t stop until they’d notched a 200% rally, so don’t bet against them doing the same this time.