Bud Light’s recent troubles should worsen in the summer, to the benefit of its competition’s brands, enough to turn Roth MKM analyst Bill Kirk bullish on the stocks of Constellation Brands Inc. and Boston Beer Co. Inc.
Kirk raised on Tuesday his rating on Modelo, Corona, Pacifico beer parent Constellation Brands to buy, after being at neutral since January 2021, while boosting his stock price target to $270 from $216.
Kirk said a lot of the market share Anheuser-Busch InBev SA’s Bud Light lost, amid backlash from the beer brand’s partnership with trans influencer Dylan Mulvaney, went to other premium light products, but he expects that to shift to Constellation’s favor.
“As the weather warms, we expect the share gains for Modelo Especial and Corona to accelerate,” Kirk wrote in a note to clients.
Constellation Brands’ stock
STZ,
rose 1.5% in afternoon trading Tuesday toward the highest close since Dec. 12, 2022, while Anheuser-Busch shares
BUD,
slumped 4.5% toward the lowest close since Nov. 10.
He noted that weekly scanner data has shown that Constellation’s beer portfolio outperformed the broader beer market by seven percentage points in early 2023, and that outperformance improved to 10 percentage points at the beginning of Bud Light’s market-share losses in April.
“With temperatures warming and substitutability with Bud Light increasing, recent weeks have seen 13 [percentage points] of outperformance,” Kirk wrote. “This trend should continue as Bud Light [declines/peak] over summer holidays.”
For Samuel Adams, Truly, Twisted Tea parent Boston Beer, Kirk raised his rating to buy, after being at neutral for at least the past three years. He raised his stock price target to $386 from $274.
Boston Beer’s stock
SAM,
jumped 6.8% toward the highest close since Feb. 15.
Earlier this year, Kirk was concerned that Truly hard seltzer’s weakness continued, offsetting Twisted Tea’s success, and that gross margins weren’t improving even after moving more production in-house.
Read more: Bud Light crisis: It’s unclear how U.S. volume drop will end, analysts say
“Now, we believe seltzer and Truly will benefit in the summer from Bud Light share losses (occasion overlap increases with warmer weather) and gross margin lift from production shift will be realized in 2Q (given inventory days timing),” Kirk wrote.
He believes that will shift investor focus away from Truly’s weakness and toward Boston Beer’s brands that are growing.
And while Wall Street expects the trends Boston Beer saw in the first quarter to continue throughout 2023, Kirk now believes the company will beat expectations for shipments and depletions, and sees opportunities for margins to also beat forecasts.
“While we had written at 1Q that the ‘timing of upside surprises remains unclear,’ we now believe the timing is Summer 2023,” Kirk wrote.
Constellation Brands’ stock has gained 5.7% over the past three months and Boston Beer shares have advanced 4.8%, while Anheuser-Busch’s stock has dropped 10.1% and the S&P 500 index
SPX,
has gained 5.9%.
