Molson Coors: Time To Buy More Or Tap Out?

Key Points

• Molson Coors popped following results but the move is not all its cracked up to be. 
• Shares of this stock may be range bound in 2023. 
• It looks like investors can rely on the 2.9% yield. 

Molson Coors NYSE: TAP popped on its Q4 results but now may not be the time to buy. Although the market is up after the report, the post-release action is less than promising. The spike in price action was used by bears and profit-takers alike to add or trim positions as the case may be. The salient point is that while the price opened sharply higher and remains above the prior session close, the signal is not good.

Molson Coors market can get back up to the $56 level, but it looks like that level is the top of a range that will cap the action for the foreseeable future. 

Molson Coors, Not As Bad As Feared 

Molson Coors Q4 results are ok and come with favorable guidance that is perhaps not worth the 10% spike in share prices that it caused. The company reported $2.63 billion in net revenue for a gain of only 0.4% compared to last year. The gain is 75 basis points weaker than expected and driven by pricing more than anything else.

The miss is slim and is offset by a better-than-expected adjusted margin with earnings up high-double-digits on a YOY basis. On a regional basis, US volume was down but offset by pricing, while EMEA/APAC saw volume and pricing growth offset by FX headwinds. The takeaway is that FX translation costs the company 380 basis points worth of top-line growth and may be expected to continue biting into results. 

The earnings news is mixed but mitigated by the fact quarterly losses are due to non-cash impairments and not operational quality. On an adjusted basis, EPS of $1.30 is nearly $0.50 better than last year and $0.25 ahead of the Marketbeat.com consensus.

Regarding the guidance, the company is forecasting low-single-digit revenue and earnings growth in 2023, driven by portfolio premiumization and cost recovery. The most exciting detail is the FCF which is expected to increase by $141 million to roughly $1 billion in 2023. This is more than enough to cover the dividend and capital plans. 

“We are proud of our accomplishments in 2022 particularly given the challenging inflationary and operating environment. While we expect these challenges to continue to impact us and our industry in 2023, we are issuing guidance for the year that anticipates continued growth while investing prudently in the business's long-term health and returning cash to shareholders."

Molson Coors Dividend Is Safe Enough 

Molson Coors's balance sheet and dividends look safe enough. The company reduced its net-debt and net-debt leverage ratio on a YOY basis, which is low at 2.9X EBITDA. Looking forward, Molson Coors can be expected to continue paying its dividend and perhaps even increase it to the pre-pandemic level over the next year or so. Regardless, the distribution is worth about 2.9% to investors and is priced right.

Trading at 14X earnings, Molson Coors is fairly-valued relative to the S&P 500 and offers value relative to Constellation Brands NYSE: STZ. 

The chart of Molson Coors is not promising. The stock popped, but the highs were used as a selling opportunity, and now the price action is well off the highs, forming a huge black candle. This candle marks the top of a trading range established before the pandemic began.

At best, investors should expect to see this stock continue moving sideways within the range and below the $60 level while at worst this stock may move down to the bottom of the range.