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Molson Coors Brewing(TAP - Get Report), the second-largest beer seller in the U.S. with about a 30% market share and the fifth-biggest brewer in the world, was formed in early 2005 via a joint venture agreement between Colorado's Adolph Coors Co. and Canada's Molson Inc.
Major brands include Coors Light, Molson Canadian, Carling, Blue Moon, Killian's, Caffrey's, Worthington's and Keystone.
Morningstar analyst Philip Gorham, who gives Molson Coors a four-star rating, said in a Feb. 11 research note that "the firm has built a reputation for executing cost-saving measures effectively, and we think the MillerCoors joint venture will allow the company to extract further value from its operations.
"However, given its limited opportunities to grow volume, Molson Coors' margin expansion cannot continue indefinitely, and the firm will be at a crossroads when the current round of cost cuts have been implemented," he said.
On the downside, he said, "the company operates in mature, low-growth beer environments where price wars can severely affect profitability."
Nevertheless, "the market appears to be missing the value of the (joint venture), and we think there is double-digit upside to the stock from current levels." It was trading at $43.54 recently.
Gorham gives its shares a fair value estimate of $59 based on a price-to-earnings ratio of 13 on his 2011 earnings estimate and a forward free cash flow yield of 8%.
Analysts estimate that for fiscal 2011, it will earn $3.84 per share and that will grow by 5% to $4.03 per share in 2012.
Standard &Poor's analysts give it a "hold" recommendation and three stars out of a possible five, as well as a 12-month target price of $49 based on 13 times 2011 earnings estimates.
Analysts reports reviewed by S&P found two "buy" ratings, four "buy/holds" and seven "hold" ratings.
Molson Coors shares are down 12% this year, but up 5% over the past year. It has a market value of $8.5 billion.