Tap Into Molson Coors Stock: A Top Beverage Value Play

Key Points

• Molson Coors stock has fallen to 52-week lows despite reporting a Q1 2024 EPS beat by 18 cents and 10.7% YoY revenue growth.
• Molson Coors has a diversified portfolio of beer, hard seltzer, and non-alcoholic brands, including Coors Light, Miller Lite, Blue Moon, Vizzy Chico Hard Selzer, Peroni 0.0, and ZOA Energy drinks.
• Molson Coors stock trades at just 8.78x forward earnings and has a 3.52% annual dividend rate.

Molson Coors Beverage Co. NYSE: TAP stock recently fell to 52-week lows as it struggled to maintain any bounce attempts. The negative trajectory took over its price action ever since releasing its Q1 2024 earnings report. The brewer of popular beers and hard seltzers is not alone when it comes to negative year-to-date (YTD) performance, as many of its competitors' stocks are also trailing in the red. However, with a compelling forward price-earnings (PE) ratio of 8.78 and a 3.52% annual dividend yield, value investors may want to tap into the shares.

Molson Coors operates in the consumer discretionary sector and competes with other alcoholic beverage makers, including Anheuser-Busch InBev SA/NV NYSE: BUD with a forward PE of 17.73, Constellation Brands Inc. NYSE: STZ with a forward PE of 18.96 and The Boston Beer Co. NYSE: SAM with a PE of 28.78.

Molson Coors’ Diversified Brand Portfolio Makes it a Leader

The name Molson Coors immediately implies the merger of the Canadian beer brand Molson and the American beer brand Coors. This has been true for over two centuries. The company has expanded its domestic and international beverage portfolio, exceeding over 120 brands after the 2015 acquisition of SABMiller.

Its well-known beer brands include Coors Light, Miller Light, Blue Moon, Foster’s, George Killian’s, Mickeys, Milwaukee’s Best, and Icehouse. Hard seltzer and cider brands include Vizzy Hard Seltzer, Topo Chico Hard Seltzer, Redd's Hard Apple, Rekorderlig Cider, Miami Cocktail Co., Arizona Hard, Arnold Palmer Spiked, and Lixir Drinks. Its foray into the $150 billion non-alcoholic and mocktail beverage market includes brands like Peroni 0.0, ZOA Energy, Coors Edge, Blue Moon Belgian White, and Staropramen Non-Alcoholic.

TAP Stock is in a Descending Triangle Pattern

The daily candlestick chart for TAP illustrates a descending triangle pattern. The descending trendline formed at $55.08 on May 31, 2024, as shares made lower highs on bounces towards the flat-bottom lower trendline at $48.19. TAP attempted to break out of the triangle by breaching the descending trendline for a day before being pulled back down as it moved closer to the apex. The relative strength index (RSI) turned back down, hovering near the oversold 30-band. Pullback support levels are at $49.19, $46.90, $42.60, and $40.41.

U.S. Sales and Volumes Were the Highlight of Q1 2024

Molson Coors reported Q1 2024 EPS of 95 cents, handily beating consensus estimates for 74 cents by 21 cents. Revenues rose 10.7% YoY to $2.6 billion, beating $2.5 billion consensus estimates. Core brands led double-digit volume growth for Coors Light and Coors Banquet, high single-digit brand volume for Miller Lite in the U.S., and double-digit brand volume growth for Ozujsko in Croatia.

Significant progress was achieved despite industry softness in the U.S. and Canada for the year. U.S. financial volumes rose 7.5% YoY. U.S. volume sales to wholesalers exceeded sales to retailers by 750,00 hectoliters. U.S. GAAP income improved 160.5% YoY before income taxes due to higher financial volume and increased net pricing and favorable sales mix partially offset by cost inflation with materials and manufacturing expenses.

Financial Volumes Fell Slightly in Western Europe

Financial volumes did slightly fall by 0.2% because of the challenges in the U.K. off-premise, which resulted in lower volumes. Increased volumes in Central and Eastern Europe partially offset this as inflation pressures eased. Brand volumes increased by 1.9% due to the increase in volume in Central and Eastern Europe, partially offset by lower Western European volumes. The company bought back $111 million of shares at an average cost of $63.18.

Molson Coors' Financial Outlook Fails to Impress

Molson Coors provided its 2024 outlook. Net sales are expected to grow in the low single-digit YoY on a constant currency basis. Underlying income is expected to rise in the mid-single digits YoY. Underlying diluted EPS is expected to increase in the mid-single digits YoY. Capital expenditures are expected around $750 million +/- 5%. Underlying free cash flow is expected to be around $1.2 billion +/- 10%.

Full Year 2024 Volume Expectations for Molson Coors

U.S. brand volume is expected to outpace domestic shipment volume for the remainder of 2024. The Q1 2024 volume sales to wholesalers exceeded volume sales to retailers by more than 750,000 hectoliters compared to the Q1 2023 difference being 100,000 hectoliters. The wind-down of a contract brewing agreement concluding by year's end is expected to reduce financial volume by 1.6 million hectoliters for the year's balance.

Molson Coors CFO Tracy Joubert commented, "Strong America's volume and favorable net pricing across both business units resulted in double-digit top-line growth while volume leverage and ongoing cost savings drove meaningful margin expansion in the quarter. We achieved this all while continuing to invest in our business and returning over $200 million to shareholders through a quarterly cash dividend and share repurchases."

Molson Coors analyst ratings and price targets are at MarketBeat. The consensus analyst price target of $65.07 implies a 30.19% upside.