Bear of the Day: The Boston Beer Co. (SAM)

The Boston Beer Company produces and sells alcoholic beverages primarily in the United States. Its flagship beer is Samuel Adams Boston Lager. The company offers various beers, hard ciders, flavored malt beverages, and hard seltzers under recognized brands including Samuel Adams, Twisted Tea, Truly, Angry Orchard, Dogfish Head, Angel City, and Coney Island.

Based in Boston, Massachusetts, the company markets and sells its products to wholesalers, importers, and other agencies that in turn sell to retailers such as grocery stores, convenience stores, liquor stores, bars and restaurants, as well as e-commerce retail outlets.

The alcohol maker faces several headwinds. Overall alcohol sales dipped last year to $112.9 billion, the first drop in three years according to NielsenIQ. Recent surveys from Gallup measured how Americans view moderate drinking; last year, a record 45% of respondents stated that one or two drinks a day is unhealthy.

Weak depletions along with continued challenges in the hard seltzer category have been acting as deterrents. Boston Beer faces intense competition from other well-established players in the industry. Rising costs owing to higher brand and selling expenses are also a concern.

The Zacks Rundown

A Zacks Rank #5 (Strong Sell) stock, Boston Beer Company SAM is a component of the Zacks Beverages - Alcohol industry group, which currently ranks in the bottom 24% out of approximately 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months, just as it has over the past year.

Stocks in the bottom tiers of industries can often be intriguing short candidates. While individual stocks have the ability to outperform even when they’re part of a lagging industry, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.

Along with many other beverage stocks, SAM shares have been underperforming over the past year. The stock is hitting a series of lower lows and represents a compelling short opportunity as we head further into 2025.

Recent Earnings Misses & Deteriorating Outlook

SAM has fallen short of earnings estimates in two of the past three quarters. Just last month, the craft brewer reported fourth-quarter earnings of $1.68 per share, missing the Zacks Consensus Estimate by -42.37%.

Boston Beer has posted a negative trailing three-quarter average earnings surprise of -15.5%. Consistently falling short of earnings estimates is a recipe for underperformance, and SAM is no exception.

The company has been on the receiving end of negative earnings estimate revisions as of late. Looking at the current quarter, analysts have slashed estimates by a whopping -25.95% in the past 60 days. The Q1 Zacks Consensus EPS Estimate is now $0.97 per share, reflecting negative growth of -6.7% relative to the year-ago period.

Image Source: Zacks Investment Research

Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.

Technical Outlook

As illustrated below, SAM stock is in a sustained downtrend. Notice how the stock has made a series of lower lows, widely underperforming the major indices. Also note that shares are trading below downward-sloping 50-day (blue line) and 200-day (red line) moving averages – another good sign for the bears.

Image Source: StockCharts

SAM stock has experienced what is known as a “death cross,” whereby the stock’s 50-day moving average crosses below its 200-day moving average. Shares would have to make an outsized move to the upside and show increasing earnings estimate revisions to warrant taking any long positions. The stock has fallen more than 22% this year alone.

Final Thoughts

A deteriorating fundamental and technical backdrop show that this stock is not set to make its way to new highs anytime soon. The fact that SAM is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.

SAM shows a second-worst ‘D’ rating in our Zacks Value category, indicating shares are likely to move lower based on unfavorable valuation metrics. The stock trades at more than 21 times forward earnings, well above the industry’s average of 16.14.

Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of SAM until the situation shows major signs of improvement.

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This article originally published on Zacks Investment Research (zacks.com).

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