BUD

Beer and Cigarettes

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Update: Shortly after the publishing of the following article, Reynolds American announced that it would acquire Lorillard in a deal valued at $27.4 billion, or a deal price of $68.88 per share (in-line with the high end of our fair value estimate range for Lorillard, as predicted). For more details >> ————— Let’s pick up right where we left off. On May 22, we commented that Reynolds American (RAI) and Lorillard (LO) have been looking to combine operations. Here’s what we wrote at that time: According to recent reports, tobacco giants Reynolds American and Lorillard continue to work to tie the knot. The speculated deal is rumored to be a three-way transaction that involves Reynolds’ shareholder British American Tobacco (BTI), … Read more

Valuentum Economic Castleâ„¢ Rating Update

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Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more

Big Tobacco, Brewers Want to Continue Consolidation; Altria to Benefit

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Altria (MO) is a holding in both the portfolio of the Best Ideas Newsletter and the portfolio of the Dividend Growth Newsletter. The company operates in one of the strongest industries in our coverage universe as it relates to structural composition (think Porter’s 5 forces). The oligopolistic tobacco industry is attractive in a number of ways. Firms in the industry sell an “addictive” product (cigarettes and/or smokeless tobacco), have significant pricing power, generate high margins, and have strong returns on invested capital. Though declining trends in smoking in the US, threats of tobacco-related litigation, new tobacco regulation (labeling) that discourages tobacco use, and excise tax price shocks that may impact demand will always be concerns, we tend to like the structural … Read more

Boston Beer Continues Its Phenomenal Run in 3Q; Shares Remain Overpriced

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There’s only one word to describe Boston Beer’s third-quarter results, issued last Wednesday, and that is ‘impressive.’ Net revenue jumped 30% from the same period a year ago thanks to core shipment growth of 29% (993,000 barrels), while net income per diluted share from the period tallied $1.89, an increase of $0.36 per share from last year’s period. Third-quarter gross margins were at the midpoint of the company’s annual gross-margin target between 52%-54%, so cost pressures (increased brewery processing costs and higher ingredient expenses) were largely expected — the measure was roughly 3 percentage points lower than the year-ago mark. The growth of depletions—the total beer volume sold to retailers, excluding product loss due to breakage and samples—was 26% and … Read more

Beam and Boston Beer Post Solid Results

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Leading spirits company Beam (click ticker for report: ) posted fantastic second quarter results led by strong performance from its established brands. Revenue increased 7% year-over-year (5% on a comparable basis) to $638 million, roughly in-line with expectations. Earnings per share increased 8% compared to the year prior to $0.64, also in-line with consensus estimates. Free cash flow was only $1 million for the quarter, but management continues to predict the free cash flow for the full-year of $300-$350 million. Beam has experienced comparable sales growth of 4% year-to-date, with premium brands such as Maker’s Mark (+18%) and Jim Beam (+4%) leading the way. Basil Hayden’s has performed exceptionally well so far this year as consumers show a willingness to … Read more