Beverage maker Boston Beer (SAM) was looking at a pretty vicious hangover in premarket trading on Friday. The company lost 3.2% in trading therein. Yet with Friday morning’s trading, the hangover cleared up, and investors came pouring back in. The stock is now up 1.7%. A disastrous earnings report doesn’t seem to have dampened any spirits, though there’s plenty of reason for a decline in sentiment.
I’m pulling back to neutral on Boston Beer; the gains seem almost unfathomable in light of what’s going on. Though possible explanations exist, trying to pin down which mesh with reality is proving a tougher task than expected.
The last 12 months for Boston Beer’s stock chart look like the aftermath of a bar fight. The company has lost about 74% of its value over the course of the last 12 months, dropping from ~$1,350 last April 22 to reaching a low of $325.53 in trading today.
The latest news wasn’t much help, either. Analysts were expecting that Boston Beer would bring in $1.97 per share in earnings. The company not only failed to meet that, but it posted an outright loss of $0.16 per share instead. It went full negative. Reports noted that shipment volume was down better than 25% this quarter, based on the same time a year previous. Likewise, gross margins were down.
Wall Street’s Take
Turning to Wall Street, Boston Beer has a Moderate Buy consensus rating. That’s based on five Buys and six Holds assigned in the past three months. The average Boston Beer price target of $458 implies 30.1% upside potential.
Analyst price targets range from a low of $334 per share to a high of $620 per share.
Support is Mixed for Boston Beer
Meanwhile, investor support is looking to be something of a mixed bag. There are some clear positives, as well as some negatives, so support for the bull and bear case alike is in play.
On the plus side, hedge funds are more involved than they’ve been in months. A look at the TipRanks 13-F Tracker shows the first uptick in hedge fund interest in over a year.
Hedge fund interest picked up between June 2020 and September 2020, then started to fall off thereafter. The jump between September 2021 and December 2021 represents the first increase seen since then.
However, there’s plenty of negative sentiment outside of hedge funds. Insider trading, for example, is clearly sell-weighted. Sellers outweighed buyers by 68 to 15 in the last year. In the last three months, though, buying and selling proved equal matches at 10 transactions for each.
As for retail investors, they’re getting out in increasing numbers as well. In the last month, just under 0.1% of portfolios cut back on holdings of Boston Beer. In the last seven days, though, that jumped around 17-fold, going to 1.7%. Boston Beer’s dividend history won’t help matters here; there is none, nor does there seem to be any about to start.
Are Analysts Propping Up Boston Beer?
Make no mistake, Boston Beer is a big name when it comes to breweries. Not only is Boston Beer in the top 50 in the United States in terms of total production, but it is actually rated number two on the list. Reports note that supply chain issues are still a problem. Everything from barley crops to aluminum cans is tougher to find and pricier to buy.
Yet reports suggest that analysts are still very much in on the company, despite its shortfalls in sales. RBC Capital held its Buy rating just about two weeks ago. MKM Partners, meanwhile, maintained its Hold rating in reports released just yesterday. Guggenheim left its Buy in place as well. Even Credit Suisse left its “outperform” rating in place, though it did lower the price target from $670 to $620.
There is a certain case to be made for Boston Beer. It’s almost summer, and prime drinking time should be in full swing between the heat, the better weather, and the increase of grilling and barbecues. That, in turn, should light a fire under demand.
However, the idea that analysts are putting out huge buy recommendations and price targets that are nearly double the current price seems a bit like a disconnect. That’s especially true given the sheer amount of competition in that market space.
Granted, the macroeconomic conditions aren’t likely to be too painful to Boston Beer. Customers will still want to drink. Though some may pursue more wallet-friendly alternatives, it’s a safe bet that sacrifices will be made elsewhere to help ensure cash on hand for booze.
There’s also some possibility of recovery to its earlier highs. While these highs were achieved back during the lockdown-heavy phases of COVID-19, there is still the potential for a return to that form.
No one’s really looking for $1,350 a share to come back—even the most optimistic price targets look for less than half that—but with Boston Beer trading off its lowest price targets, the possibility of at least recovering to the average target is there.
Concluding Views
Boston Beer doesn’t look like a particularly great investment. The company is trading closer to its lows than its highs, which suggests upside potential on hand. Its earlier-seen pricing levels suggest that it can actually achieve those numbers because they were there once. The growing support from hedge funds doesn’t hurt either.
The pattern of insider selling isn’t the most confidence-inducing, but we are seeing more buying these days out of the insiders than we saw in the past. The retail abandonment isn’t helping, nor is the lack of a dividend to get income investors interested.
I’ve pulled back to neutral, as the bull and bear cases seem almost evenly matched from here. That’s not a position to necessarily abandon, but augmenting that position doesn’t seem like a great plan either.
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