Company Reports

Molson Coors owns well-known brands such as Miller, Coors, and Blue Moon in North America and Carling in the UK. However, heavy exposure to the secularly challenged midrange and economy beer segments has resulted in falling volume and less relevance. This is preventing the firm from maintaining brand-driven intangible assets that would underpin a durable competitive edge. Furthermore, the firm has had limited success thus far in parlaying its legacy brands into higher-end beer, which is more conducive to brand prowess. As such, we don’t believe it has carved out an economic moat.

No-moat Molson Coors posted good second-quarter results, with resilient performance in the US and steady operational efficiency gains that eased investor anxiety about the brewer’s prospects amid a consumer pullback. Sales of $3.3 billion were flat in constant currency (against a tough comparison of 12% a year ago), while adjusted earnings per share of $1.92 grew 8% thanks to operating efficiency gains. Shares rose 7% on the report but remain undervalued relative to our $70 fair value estimate, which we plan to maintain. We see no change to our 2024 estimates for sales and adjusted EPS to grow 1% and 4%, respectively, or our 10-year projections for low-single digit sales growth and low-teen average operating margins.

We plan to maintain our $70 fair value estimate for no-moat Molson Coors after digesting its first-quarter results. Sales increased 10% in constant currency thanks to volume rebounds, while adjusted earnings per share expanded 75% on volume leverage, cost savings, and a lower tax rate (21% versus 29% a year ago). While we think management deserves credit for stepping up innovation and marketing in the US and focusing more on the on-premises channel in Europe, we expect a distressed consumer and intensifying competition to weigh on the brewer’s outlook. We maintain our 2024 estimates for increases of 1% in sales and 4% in adjusted EPS, which align with management’s unchanged outlook for a low-single-digit sales growth and a mid-single-digit adjusted EPS increase. Our 10-year projection for low-single-digit sales growth and low-teens average operating margins remain in place.

Molson Coors owns well-known brands, such as Miller, Coors, and Blue Moon in North America and Carling in the U.K. However, heavy exposure to secularly challenged midrange and economy beer segments has resulted in falling volume and less relevance. This is preventing the firm from maintaining brand-driven intangible assets that would underpin a durable competitive edge. Furthermore, the firm has had limited success thus far in parlaying its legacy brands into higher-end beer, which is more conducive to brand prowess. As such, we don’t believe the firm has carved out an economic moat.

We don’t plan any material changes to our $70 fair value estimate for no-moat brewer Molson Coors after digesting its 2023 results, as sales growth of 9.4% and adjusted EPS of $5.43 edged our estimates of 9% and $5.34, respectively. While we give management credit for swift measures in 2023 to boost North America volume expansion as controversies affected main rival wide-moat Anheuser-Busch, in addition to steady efficiency gains in the past few years, we remain unenthused about the firm’s long-term outlook. This is given its reliance on commoditized midrange and economy beer segments and a lack of premium brands to capitalize on the consumption upgrade trends. As such, our 10-year projections for low-single-digit sales growth and low-teens average operating margins remain in place.

Molson Coors owns well-known brands, such as Miller, Coors, and Blue Moon in North America and Carling in the U.K. However, heavy exposure to secularly challenged midrange and economy beer segments has resulted in falling volume and less relevance. This is preventing the firm from maintaining brand-driven intangible assets that would underpin a durable competitive edge. Furthermore, the firm has had limited success so far in parlaying its legacy brands into higher-end beer, which is more conducive to brand prowess. As such, we don’t believe the firm has carved out an economic moat.

We plan to increase our 2023 estimates for no-moat Molson Coors after digesting solid third-quarter results, with sales growth of 12% and EPS of $1.99 exceeding our estimates of 10% and $1.75, respectively. However, we hesitate to view the update as indicative of any durable improvement in its competitive standing or growth outlook, given its exposure to commoditized mid-range and economy beer segments and a lack of premium brands to capitalize on the premiumization trends. As such, our 10-year forecasts for low-single-digit annual sales growth and low-teens average operating margins remain in place, and we plan to maintain our $70 fair value estimate. Shares look undervalued, trading at a 17% discount to our intrinsic valuation.

Molson Coors owns well-known brands, such as Miller, Coors, and Blue Moon in North America and Carling in the U.K. However, heavy exposure to secularly challenged midrange and economy beer segments has resulted in falling volume and less relevance. This is preventing the firm from maintaining brand-driven intangible assets that would underpin a durable competitive edge. Furthermore, the firm has had limited success so far in parlaying its legacy brands into higher-end beer, which is more conducive to brand prowess. As such, we don’t believe the firm has carved out an economic moat.

We plan to raise our $68 fair value estimate for no-moat Molson Coors by a low-single-digit percentage to incorporate better-than-expected second-quarter results and time value. Sales grew 12% (against a 1% decline a year ago) and EPS came in at $1.57, both exceeding our estimates of 8% and $1.25, respectively. We plan to tick up our 2023 estimates following the earnings update, but we don’t view the quarterly results as indicative of any durable improvement in its competitive positioning. Our 10-year projections for low-single-digit sales growth and low-teens average operating margins remain in place. Shares trade in a range we’d consider fairly valued.

We no longer see the shares of no-moat Molson Coors as offering a compelling risk/reward balance, as the stock price is approaching our $68 fair value estimate. The stock has appreciated 39% since January 2021, compared with an 18% gain in the S&P 500 index for the same period. We believe investors have reacted favorably to stabilizing volume trends in the brewer’s core midrange and economy beer segments as well as a series of cost-cutting measures implemented to wring efficiency out of its vast brewing operations. However, we see limited upside from the current share price.

Despite owning well-known brands including Miller, Coors, and Blue Moon in North America and Carling in the U.K., we view Molson Coors as a laggard in the shifting beer landscape. Legacy brands’ volume concentration in the secularly challenged midrange and economy beer segments prevents the firm from monetizing high brand awareness to extract economic profits. Meanwhile, the lack of compelling premium brands constrains its ability to ride the premiumization trend and foster a lasting competitive edge. We don’t believe the firm possesses brand-driven intangible assets or any cost advantage to earn an economic moat.

Molson Coors owns well-known brands, including Miller, Coors, and Blue Moon in North America and Carling in the U.K. However, heavy exposure to secularly challenged midrange and economy beer segments has resulted in falling volume and less relevance. This is preventing the firm from maintaining brand-driven intangible assets that would underpin a durable competitive edge. Furthermore, the firm has had limited success so far in parlaying its legacy brands into higher-end beer, which is more conducive to brand prowess. As such, we don’t believe the firm has carved out an economic moat.

We expect to maintain our $67 fair value estimate for no-moat Molson Coors and view shares as fairly valued trading at a 3% discount. While first-quarter organic revenue growth of 8% and adjusted EPS of $0.54 exceeded our estimates of 4.8% and $0.30 respectively, we are skeptical that strength in the seasonally small quarter will carry through the rest of the year. We believe top-line growth in the quarter was primarily driven by price increases implemented in 2022, which should not repeat in 2023 amid consumer belt-tightening. Additionally, soft volume (down 2.8%) in the core U.S. market does not bode well for volume trends in the coming quarters. On the profitability front, the 340-basis-point contraction in operating margins to 6.7% again supports our less sanguine view on the firm, as we believe higher marketing and distribution spending to support premium launches and a lack of pricing power in midrange and economy segments to offset high-single-digit input and manufacturing cost inflation both took a toll on profits. We don’t expect margin headwinds to subside in the near future. Our reservation about the brewer’s full-year prospects is consistent with management's decision to maintain its modest full-year guidance calling for low-single-digit top-line and pretax profit growth.

Molson Coors has long been a mainstay of the global beer industry, with North American staples like Coors and Miller and leading European brands such as Carling. However, in our opinion, these trademarks that were once strengths are now largely declining in relevance and volume. Moreover, while they are starting to see improvements, the firm's legacy brands have proved difficult to parlay into higher-end categories with more propitious growth prospects, as innovation efforts in this regard have seen mixed success. With the firm's dominance largely in secularly challenged segments of the malt category, we do not believe this positioning reaps advantages sufficient for a moat.

Molson Coors’ 2022 sales and EPS exceeded our expectations despite weak beer volumes in the Americas and inflation. While its initial 2023 guidance of low-single-digit growth for both constant-currency sales and pretax income is modest, it is understandable given the economic and industry uncertainty and is in line with our forecast. Thus, we do not expect to make any material change to our per-share $67 fair value estimate, leaving shares undervalued. Although we rate Molson Coors as a no-moat firm, we believe it is making progress in supporting its core brands (such as Coors Light and Miller Lite) while boosting its premium brands (such as Blue Moon and Topo Chico). Specifically, between 2019 and 2022, premium’s share of Molson Coors’ total sales increased to 28% from 23%. In the long run, a continuation of this trend should allow the firm’s operating margins to approach 15%, up from around 13% at present, due to the premium brands’ healthier pricing.

Molson Coors has long been a mainstay of the global beer industry, with North American staples like Coors and Miller and leading European brands such as Carling. However, in our opinion, these trademarks that were once strengths are now largely declining in relevance and volume. Moreover, while they are starting to see improvements, the firm's legacy brands have proved difficult to parlay into higher-end categories with more propitious growth prospects, as innovation efforts in this regard have seen mixed success. With the firm's dominance largely in secularly challenged segments of the malt category, we do not believe this positioning reaps advantages sufficient for a moat.

No-moat Molson Coors' 4% (7.9% constant currency) sales growth in 2022's third quarter keeps it on pace to reach our 3% sales growth estimate for the full year. The sales growth was due entirely to price increases and mix as financial volume dropped 0.2% due to the lingering effects of the (now-settled) strike in Quebec. However, the top-line growth was overshadowed by cost concerns as underlying cost of goods sold per hectoliter were up 12% from last year due to higher input, transportation, and energy costs, with a smaller impact from mix. This cost increase (similar in size to that of the previous quarter) was something of a disappointment given that many costs have been declining and the company has a hedging program in place. While the company reports that price increases have offset higher costs in most markets, it admitted to softer demand amidst rising prices in Central and Eastern Europe. Due to this trend and the expectation of ongoing higher costs, the company suggested full-year constant-currency pre-tax income would be at the low end of high-single-digit growth guidance. While there are also concerns that U.S. beer demand has recently weakened, Molson Coors' management was unwilling to concede any material impact and highlighted share gains in beer in the U.S. and U.K.

Molson Coors has long been a mainstay of the global beer industry, with North American staples like Coors and Miller and leading European brands such as Carling. However, these trademarks that once were a strength are now mostly albatrosses, in our opinion, largely declining in relevance and volume. Moreover, while they are starting to see improvements, the firm's legacy brands have proved difficult to parlay into higher-end categories with more propitious growth prospects, as innovation efforts in this regard have seen mixed success. With the firm's dominance largely in secularly challenged segments of the malt category, we do not believe this positioning reaps advantages sufficient for a moat.

No-moat Molson Coors overcame a lengthy strike (resolved in June) at one of its breweries and a product recall to achieve 2.2% constant-currency sales growth in the second quarter. While this result against the reopening of the economy last year keeps the firm on track to reach our 4.5% 2022 sales growth estimate, investors focused on the murky outlook for the second half of the year, given cost inflation, weakening U.S. beer sales, unfavorable currency movement, and economic growth concerns, sending the shares down 10%. Molson Coors’ net sales in the Americas dropped 1.7% (constant currency) in the quarter due to the strike and recall but also some trade-down by consumers to its lower-priced beer offerings. Given the economic situation, we expect to lower our $69 fair value estimate by a low-single-digit percentage but still view Molson Coors as undervalued. We are encouraged that the firm reiterated its guidance of about $1 billion in underlying free cash flow this year, which should allow it to continue to pay its dividend (yielding about 3%), repurchase shares, and pay down debt. Moreover, we think investments in its premium brands will improve share in some categories after years of losses.

Molson Coors has long been a mainstay of the global beer industry, with North American staples like Coors and Miller and leading European brands such as Carling. However, these trademarks that once were a strength are now mostly albatrosses, in our opinion, largely declining in relevance and volume. Moreover, while they are starting to see improvements, the firm's legacy brands have proved difficult to parlay into higher-end categories with more propitious growth prospects, as innovation efforts in this regard have seen mixed success. With the firm's dominance largely in secularly challenged segments of the malt category, we don't believe this positioning reaps advantages sufficient for a moat.