Max, thanks for the second opinion on DHI. Did you see the new housing stats that came out today ? Not as good as expected but analysts shrugged the report off due to the certainty that interest rates will not be going up in the foreseeable future.
On another subject, here's the Turnaround Letter's report on SAM for perusal purposes :
Purchase Recommendation: Boston Beer Company
Category: Moderate Risk
Symbol: (SAM)
Exchange: NYSE
Principal Bus.: Brewing
Annual Rev.: $209.5 Million (12/31/97)
Earnings: $7.6 Million
5/26/98 Price: 11 1/16
12-month Range: 7 5/8 - 12 7/16
Max. Rec. Price: 16
Div. Yield: Nil
Address:
75 Arlington Street
Boston, MA 02116
Telephone (617) 368-5000
Internet Site: www.samadams.com
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Background: Boston Beer, whose flag ship product is Sam Adams Lager, is the leading "craft" brewer in the country and the seventh largest U.S. brewery overall. Launched in 1985, Sam Adams was one of the first craft beers, and it quickly attracted a strong following. The company grew rapidly, and when it went public in late 1995, the stock quickly surged to 33. Unfortunately, the stock didn't stay up there for long.
By the mid-1990's the specialty brewing market had become very crowded. When Sam Adams first came out in 1985, it was one of only a handful of craft beers on the market. Now there are more than 500 craft breweries in the U.S., plus another 800 or so "brew-pubs". In addition, the three major national breweries have brought out their own craft brands.
While Boston Beer has remained profitable, the glut of competing products has stalled its earnings growth. As a result, the stock tumbled sharply, hitting a low of 7 5/8 earlier this year.
Analysis: We are beginning to see a shakeout in the craft beer market, and as competitors struggle, Boston Beer is in a strong position to regain its upward momentum. It is the dominant brand in the field, selling more beer than the next five largest craft brewers combined, and it will pick up additional strength as others falter.
Boston Beer not only has the best known brand in the craft industry, but it has the largest and most efficient distribution system as well. It has built up its sales force to the point where it is now the fourth largest in the malt beverage industry, behind only Anheuser-Busch, Miller and Coors.
Boston Beer also has strong management, led by CEO James Koch. Koch is descended from a long line of brewers, and he is also a Harvard trained MBA (with a law degree as well) who spent a number of years at the prestigious Boston Consulting Group before starting Boston Beer. As owner of more than 5.5 million shares (27% of the outstanding stock), Koch has a powerful incentive to get the company's earnings growing again.
In addition to its market clout, Boston Beer has a very strong balance sheet. It has more than $36 million in cash and only $10 million in debt. As the market consolidates, the company can use these financial resources in several different ways. It has already stepped up its advertising in recent months. And it can use its cash to buy up brands or brewing facilities as competitors falter.
Boston Beer has other ways of rekindling its growth while it waits for the market shakeout. It is successfully using its brand name and distribution strength to launch new specialty products. For example, its recently introduced Samuel Adams White Ale has proven to be a strong seller. In addition, the company is expanding its presence abroad. After breaking into the Swiss, Japanese and Hong Kong markets in the past year, Sam Adams is now available in 19 countries.
The craft beer market is likely to remain challenging for some time. But a shakeout is beginning, and Boston Beer is well positioned to increase its already formidable market posi tion. As the industry consolidates, Boston Beer will be able to use its powerful brand name and powerful distribution system to generate pow erful profits. We recommend buying the stock up to 16. |
