Shares of Boston Beer (SAM) are sliding on Tuesday after Jefferies analyst Kevin Grundy downgraded the stock to Underperform, saying his consumer survey and web scrapes point to the potential for greater competitive intensity in the "rapidly growing" spiked seltzer category. This comes almost a month after his peer at Macquarie upgraded the shares to Outperform as hard seltzer continues to growth and to take share from mainstream beer.
SELL BOSTON BEER: In a research note to investors, Jefferies' Grundy downgraded Boston Beer to Underperform from Hold and lowered his price target on the shares to $332 from $360. The analyst noted that his consumer survey and web scrapes point to the potential for greater competitive intensity in the "rapidly growing" spiked seltzer category. With scope to increase awareness/trial and strong conversion rates, Grundy forecasts the category to double again by the end of 2021. However, the analyst argued that low brand loyalty/high interest to try new brands, supported by social media "buzz" for new products, supports his more cautious view on Boston Beer. Overall, he views Boston Beer's valuation as "stretched" given its competitive risk in hard seltzers.
BUY BOSTON BEER: Last month, Macquarie analyst Caroline Levy upgraded Boston Beer to Outperform from Neutral and raised her price target on the shares to $460 from $420, as IRI data showed sales were up 35% in the four weeks ended July 28, which she said confirmed the company's strong sales trends and continued momentum in its portfolio. The analyst also noted that Boston Beer is the only public company that generates a high percentage of sales in hard seltzer, which is growing over 100% and which she expects will continue to take share from mainstream beer due to its low-cal profile and adaptability to many flavors. It also dominates the hard tea category with Twisted Tea which is growing mid-teens even though it is a 20-year-old brand, she contended. With Dave Burwick newly appointed as CEO, Levy believes "a lot of positive change is afoot."
PRICE ACTION: In early afternoon trading, shares of Boston Beer have dropped about 6.5% to $410.71.
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