Molson Coors Stock Falls 19% in Six Months: Time to Hold or Fold?

Zacks Equity Research

Thu, Sep 26, 2024, 10:42 PM6 min read

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Molson Coors Beverage Company TAP has seen its stock price fall 18.2% in the past six months against the industry’s 9% growth. This decline has raised concerns among investors about the company's prospects. To understand the situation, it's essential to examine the factors contributing to this decline and evaluate the company's long-term strategies.

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At the current price of $54.60, the stock trades below its 52-week high of $69.18 achieved on April 9, 2024. The current stock price represents a decline of 21.1% from its highest point this year.

Molson Coors stock has fallen below critical technical thresholds, including its 200-day moving average of $58.48, which signals potential bearish sentiment in maintaining recent performance levels.

Understanding TAP’s Decline

Molson Coors has been facing some headwinds due to the ongoing phase-out of the Pabst contract brewing volume. In second-quarter of 2024, this exit reduced financial volume by 580,000 hectoliters (hl), with declines accelerating compared with the first quarter. In the first half of 2024, the financial volume was reduced more than 900,000 hl, representing a decline of more than 50% in Pabst contract volume compared with the first half of 2023. Pabst had a negative 3.2 percentage points year-over-year impact on America’s financial volume for the second-quarter and the first half of 2024.

Molson Coors has been witnessing inflationary pressures for materials and manufacturing expenses for a while. TAP’s underlying cost of goods sold (COGS) per hl increased 2.9% year over year in constant currency in the second quarter. This increase is due to cost inflation related to materials and manufacturing expenses, volume deleverage and unfavorable mix driven by lower contract brewing volumes in the Americas segment, partially offset by cost savings initiatives.

How Are TAP’s Estimates Faring?

Molson Coors is currently in a tough spot. In the past seven days, the Zacks Consensus Estimate for third-quarter 2024 earnings per share has moved down a penny to $1.67. The current estimates indicate a year-over-year decline of 13%.

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Strength in Core Brands Aid Molson Coors

Despite the recent stock performance, Molson Coors Beverage has shown resilience in its core brands and businesses. The company's second-quarter 2024 results demonstrated continued bottom-line growth and the strongest net sales revenues since the Molson and Coors merger in 2005. TAP benefited from strong performance in the EMEA&APAC business, driven by favorable net pricing, premiumization and growth in brand volume.

Molson Coors’ strategic priorities start with core power brands, which are Coors Light, Miller Lite and Coors Banquet in the United States. In the second quarter, the combined volume share declined half a share point of the industry from a year ago. However, these brands are still up by two full share points compared with the second quarter of 2022. This indicates that TAP retained approximately 80% of peak share gains on the core power brands.

TAP’s 150-year-old brand, Coors Banquet, is experiencing exceptional growth not only by building its loyal consumer base but also by attracting new Gen Z and millennial legal drinking age consumers. Coors Banquet achieved nearly 13% growth in brand volume in the first half of 2024 and gained a dollar share at the fastest rate among the top 15 beer brands.

TAP’s Premiumization, Revitalization and Innovation Plans

Molson Coors’ emphasis on premiumization extends to both beer and Beyond Beer, with the premium portfolio representing more than 26% of total net brand revenues for the 12 months ended June 30. Premiumization progress is at varying stages across regions but has been successful in EMEA&APAC, Canada and Latin America. In EMEA&APAC, the premium share of net brand revenues remains above 50%. This improvement is due to the exceptionally successful launch of Madrí, which continued to generate double-digit revenue growth in the second quarter.

With the implementation of the revitalization plan, Molson Coors is concentrating on achieving sustainable top-line growth by streamlining the organization and reinvesting resources into its brands and capabilities. The company is experiencing benefits in market share gains, especially in Canada. TAP is committed to revitalizing its premium brand Blue Moon by launching new packaging, focusing on a new campaign and repositioning Blue Moon Light.

TAP’s innovation strategies are also working successfully, highlighted by the launch of Simply Spiked Lemonade which within two years crossed $100 million. Flavors innovation is a key area of focus to meet consumer preferences, which are rapidly evolving. The company also has innovation plans for Blue Moon and exciting plans for Peroni.

Molson Coors Valuation Comparison

While TAP’s stock is trading at a discount compared with its industry peers, this valuation disparity might not be as favorable as it seems. The lower price could be indicative of underlying issues rather than representing a clear investment opportunity.

Molson Coors also trades at a discount to its historical and industry benchmarks. The stock has a forward 12-month P/E ratio of 9.37X, which is below the median level of 11.02X scaled in the past year. This compares with the forward 12-month P/E ratio of 17.46X for the industry.

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How to Play the TAP Stock?

Although Molson Coors’ strategic moves, premiumization, innovation plans and solid brand performance are encouraging, investors should weigh these factors against the risks posed by the ongoing phase-out of the Pabst contract, higher underlying COGS and negative estimate revisions. Existing shareholders should maintain their position in this Zacks Rank #3 (Hold) stock. However, potential new investors might want to wait and watch until further prospects.

Stocks to Consider

Here, we have highlighted three better-ranked stocks, namely The Coca-Cola Company KO, Keurig Dr Pepper Inc. KDP and Flowers Foods, Inc. FLO, currently carrying a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Coca-Cola is a beverage company that manufactures, markets and sells various non-alcoholic beverages worldwide. KO has a trailing four-quarter earnings surprise of nearly 4.7%, on average.

The Zacks Consensus Estimate for Coca-Cola’s current fiscal year’s sales and earnings indicates growth of 0.6% and 6%, respectively, from the year-ago reported numbers.

Keurig Dr Pepper owns, manufactures and distributes beverages and single-serve brewing systems in the United States and internationally. KDP has a trailing four-quarter earnings surprise of 3.9%, on average.

The Zacks Consensus Estimate for Keurig Dr Pepper’s current financial year’s sales and earnings implies a rise of 4% and 7.3%, respectively, from the year-earlier reported figures.

Flowers Foods produces and markets packaged bakery food products in the United States. FLO has a trailing four-quarter earnings surprise of 1.9%, on average.

The Zacks Consensus Estimate for Flowers Foods’s current financial year’s sales and earnings indicates an increase of around 1% and 5%, respectively, from the year-ago reported numbers.

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