Boston Beer Is a Buy Says MKM, Won't See Much Volatility

Boston Beer won't see much volatility in the current economic climate, MKM says in upgrading the brewer’s shares to buy from neutral.

Boston Beer  (SAM) - Get Report, producer of Samuel Adams Boston Lager and several beers and ciders, was upgraded to buy from neutral by an MKM analyst, who said the company "will not experience much operational volatility" in the current economic climate.

Shares of the Boston brewer at last check were up 9.6% to $335.80.

Analyst Bill Kirk, who has a $351 price target on the company, said in a note to investors that "during a period when the fundamental uncertainty plagues valuations, we believe Boston Beer will not experience much operational volatility."

"We believe Boston Beer is best-in-class at category innovation, participating in, or leading all, major adjacent innovation waves over the last decade," Kirk said.

The coronavirus pandemic has forced many bars and restaurants to close or switch to a takeout-and-delivery model.

Kirk said that the beer industry holds up remarkably well during weak economic periods and that Boston Beer grew every quarter during the recession. 

In addition, Kirk said, "in instances where bars/restaurants are required to close, Boston Beer will be less impacted."

"As bars/restaurants close, beer consumption shifts to at-home," Kirk wrote. "As long as grocery stores and liquor stores remain open, we don't expect aggregate beer volumes to be meaningfully impacted. Some data suggests beer, along with other vices could grow."

Kirk said he expected Boston Beer's Truly hard seltzer to continue its rapid growth and not cede much market share to innovations such as Bud Light Seltzer.  (BUD) - Get Report

The largest risk to the upgrade, Kirk said, would be disruption at company-owned or third-party-production facilities. 

"We still consider first-quarter 2020 estimates too high," Kirk said, "but largely on mismodeling the seasonality of the business and not an issue with fundamentals."