When Boston Beer Company (SAM 0.74%) announced better-than-expected second-quarter results in late July, shares surged as much as 22% the following day -- and with good reason. Boston Beer's performance was punctuated by significantly improved trends for depletions, a key industry metric for how fast its products travel from warehouses to consumer outlets, despite steep competition at retail and a general softening of its core craft beer and cider markets. Looking forward, Boston Beer management is not only working to reduce costs and increase operating efficiency but also striving to return its flagship Samuel Adams and Angry Orchard brands to sustained growth.
But if a recent analyst report is correct, America's largest publicly traded craft brewer may be swallowed up before that happens. More specifically, Boston Beer shares climbed another 5% on Tuesday after Credit Suisse analyst Laurent Grandet suggested the company could be an enticing acquisition target.
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The stakes of Boston Beer's turnaround are high
In doing so, Grandet upgraded his rating on Boston Beer stock to "neutral" from "underperform," while simultaneously increasing his per-share price target to $150 from $140. For perspective, Boston Beer stock closed on Friday at just over $156 per share.
To justify his relative optimism, Grandet noted that while "market sentiment remains overly negative" surrounding Boston Beer, he sees "a more balanced spread between potential upside and downside scenarios."
"In addition," Grandet wrote, "although founder Jim Koch seems determined to turn the business around, we think the likelihood of a takeout goes higher if Samuel Adams rejuvenation efforts ultimately fail next year."
Potential suitors
All told, he believes there's a "fair probability" that Boston Beer is acquired over the next 12 months by either a larger peer like Molson Coors (TAP 0.55%) or through a leveraged buyout by private equity investors. He further says Boston Beer could fetch as much as $207 per share, which would equate to an enterprise value of just under $2.5 billion.
"We think Molson Coors would be the most agreeable candidate for Koch to consider buying his company," Grandet mused.
To be sure, we know Molson Coors isn't afraid of acquisitive growth given the right opportunity. It only just closed on its $12 billion acquisition of SABMiller's 58% stake in MillerCoors late last year -- a move which, to be fair, SABMiller had no choice but to make to facilitate regulatory approval for its own $100 billion megamerger with Anheuser-Busch InBev. As a result, Molson Coors emerged as the world's third-largest global brewer by enterprise value.
Boston Beer would certainly be an enviable name to add to its mix. According to this year's Customer Loyalty Engagement Index from Brand Keys, Samuel Adams was tied for third with Yeungling in the list of America's favorite beer brands, trailing only Corona in second place and, ironically, Coors at the top of the heap.
But even despite its recent rebound, Boston Beer stock has fallen around 8% so far in 2017 and sits more than 50% below its early 2015 highs achieved before its current woes began to materialize. If Boston Beer's improvements turn out to be unsustainable, it could easily give up its recent gains and present a mouthwatering chance for opportunistic buyers to make their move.
Alternatively, if Boston Beer's turnaround continues to accelerate in the coming quarters, its stock should respond in kind and discourage potential suitors from placing their bids -- a scenario I would admittedly prefer, as a fan of the brand and craft beer in general. In either case, however, it seems Boston Beer shareholders should be poised to benefit.
