This Stock Could Sizzle This Summer

Jun 26, 2022

Social Media Is Buzzed on This Profit Opportunity

Hard-seltzer drinks, craft beer, spiked lemonade… the choices seem endless for a refreshing adult summer beverage.

And interestingly enough, one company offers all of those beverages — and then some.

Social media is buzzing about Molson Coors Beverage Co. (TAP), and we want to make sure it’s on your radar.

Let’s dive right in…

1. Molson Coors Is Outperforming Peers

When Anheuser-Busch InBev’s CEO called consumer demand “resilient,” it reinforced our thinking that owning a beer maker in this market makes sense.

But owning any old brewer won’t do.

It must be a company whose strategy is in line with industry trends. One that is connecting with drinkers at a higher level.

LikeFolio’s comprehensive demand data is pointing westward, to Golden, Colorado. That’s where the world’s fifth-largest beer company is headquartered — and where a lot of the social media buzz is focused in the alcoholic beverage space.

The above chart shows that Molson Coors is outpacing industry peers in terms of consumer demand growth for its products.

Let’s dig deeper to find out why.

2. Legacy Brands Are Still Popular

Last summer, Molson Coors announced a plan to retire 11 of its economy brands. Milwaukee’s Best, Keystone, Icehouse, and others were tagged to sail into the sunset.

We could almost hear the collective moan of college students everywhere.
Really, the Beast is retiring? It turns out that management’s confidence in the strength of its core brands was well-founded.

In Q1 2022, Coors Light and Miller Lite had their best industry share performance in five years! And in the U.K., Carling held on to its No. 1 beer ranking.

Strength in these iconic brands drove a 17% jump in both sales and earnings per share that made the Street look, well, intoxicated.

Our proprietary purchase intent metric confirms that consumer interest in these beers has persisted into Q2: On a 30-day basis, purchase intent is up 16% year-over-year (YoY) for Coors Light and 18% YoY for Miller Lite.

The purchase intent chart for the entire Molson Coors portfolio tells a similar story.

The above chart shows that consumer purchase intent mentions are trending higher over the past year. Demand is accelerating in June, which bodes well for the beer industry’s peak season.

Meanwhile, Molson Coors stock has been dragged lower by market weakness.

This is a disconnect that should eventually be reconciled by share price appreciation.

But there’s more to the story…

3. The Premiumization Plan Is Working

Make no mistake, though, this is not your grandfather’s Banquet Coors.

The main reason the company dumped its economy brands is the “premiumization” of its portfolio. This is a strategy that puts a greater focus on “above-premium” beer and “beyond beer” products.

Why “above premium”? Because it’s the fastest-growing area of the beer industry.

It makes financial sense, too. With more premium offerings comes better margins and better financial results.

Initially the strategy was led by hard seltzers. The category has taken off in recent years but is highly seasonal, with demand peaking during summer months. Still, Molson Coors’ brand Topo Chico is the fastest-growing hard seltzer in the U.S.

Then came a greater emphasis on craft and specialty beers. Blue Moon and Peroni fall under this category — and both recorded double-digit sales growth in Q1.

Molson Coors also entered the hard soda space, and even introduced beer-flavored lollipops during March Madness.

Through the end of Q1, the above-premium segment accounted for the highest percentage of trailing 12 months revenue (26%) since 2016, when Molson Coors acquired MillerCoors.

In the U.S., Molson Coors’ above-premium business has gained market share in each of the last five quarters.

We wondered if the introduction of a bunch of non-beer products would hurt Molson Coors’ consumer happiness data.

Not so.

Consumers are as happy as ever. Over the past decade, the company’s happiness reading has been remarkably consistent, bouncing between 70% and 80%.

The current 77% reading tells us that beer and non-beer drinkers alike are embracing the expanded menu.

By comparison, only 63% of Sam Adams’ consumers are happy.

4. The Return of Happy Hour

Brewers are undoubtedly benefiting from loosened restrictions at bars and restaurants.

More people are returning to work in office environments, which means happy hours and after-work socialization are up.

At the same time, people are trying new things. Canned cocktails are a hot item, especially at weddings— shorter line at the bar! Soon hard seltzers will be popular again as warmer temps prevail.

Molson Coors is connecting with consumers because it is in tune with evolving tastes and preferences… especially those of the youngest generation of drinkers.

A key tenet of the company’s revitalization plan is to recruit “new legal age drinking consumers” by gearing marketing and innovation toward new 20-somethings.

A plan to enhance digital capabilities like social media outlets will come in handy here.

The company is also winning by being quicker to bring new products to market.

A “test and learn” approach followed by rapid scaling is dramatically reducing time to market, from 18 months to as little as four months.

5. Molson Coors Is Inflation-Resistant

Like the rest of corporate America, Molson Coors has its share of inflation challenges. Packaging and transportation costs are up significantly, as are wages.

But the company has stayed relatively inflation-resistant because it has:

And inflation sure didn’t faze management from maintaining an upbeat outlook for the remainder of the year. It is expecting a mid-single-digit increase in 2022 sales. This speaks to an ability to pass along higher costs to consumers, backed by the strength of an expanding lineup of beverages.

Should the economy dip into a recession, Molson Coors should also fare relatively well. Alcoholic beverage companies are among the “sin stocks” that tend to perform well during economic downturns. To many consumers, their favorite beverages become security blankets that get them through the tough times.

So even if we go back into recession-induced “lockdown” mode, it’s not like people are going to stop their drinking habits.

Granted, the restaurant, bar, and events channels could pare back orders in a recessionary environment.

But based on the strength in Molson Coors’ underlying consumer trends, we don’t expect a detrimental effect on purchase behavior.

6. Growth Outlook Is Bright

This summer, Molson Coors is teaming up with Coca-Cola to roll out Simply Spiked Lemonade. The canned cocktail is based on the nation’s leading juice brand and will come in slim-can 12-packs and in 24-ounce stand-alone cans.

Delicious juice with a splash of fun… Sounds refreshing to us!

We’ll be tracking the consumer response to this launch. It could be a big sales contributor.

Simply Spiked exemplifies a push into non-beer markets that is a big part of why management is feeling good about the rest of the year and beyond.

Source: Molson Coors Investor Relations

By 2023, the emerging growth portion of the Molson Coors portfolio is expected to be a $1 billion business. Products like Five Trail American Whiskey and La Colombe ready-to-drink coffee are leading the way.

The international growth prospects are also promising. Molson Coors sells beer in about 100 countries, and sales outside North America account for less than 20% of total sales.

With inflationary pressures expected to subside and higher-margin premium brands leading the charge, the Street is projecting 8% earnings-per-share growth in 2023. This would mark the company’s best profit growth of the last five years.

It also means that Molson Coors is trading at 13 times its fiscal year 2023 earnings estimate. For comparison, the S&P 500 currently goes for 15 times next year’s earnings estimate.

On top of the growth outlook, it’s hard not to like the stock’s forward dividend yield of nearly 3% — and the recently approved $200 million buyback program through March 2026.

After advancing seven straight months, TAP is taking a breather in June. It’s looking like a good time to crack open a position.

Summary: Tapping into the Right Trends

Consumers are buying what Molson Coors is selling. From classic beers to canned cocktails, LikeFolio data shows that demand is strong heading into the all-important summer drinking season.

In addition to having more social opportunities in its favor, we expect Molson Coors to reap the rewards of being a leading innovator.

Its turnaround plan focused on going beyond beer is gaining traction and driving higher sales. As premium and emerging brands continue to become a bigger part of the portfolio, stronger earnings should follow.

In the current inflationary environment, we see Molson Coors as a good name to hunker down with. As the growth strategy plays out over the long haul, expect some nice gains on tap.