On Friday, Wells Fargo (NYSE:WFC) analyst issued an upgrade for Molson Coors (NYSE: NYSE:TAP) stock from Underweight to Overweight, alongside a significant price target increase to $74 from the previous $52. The new target is based on a projected 12 times the calendar year 2026 estimated earnings per share (EPS). The analyst's rationale for the upgrade centers on three main points that suggest a positive outlook for the company in the coming years.
Firstly, the analyst forecasts modest growth in earnings before interest and taxes (EBIT), averaging just a 0.5% increase over the next three years. Despite this conservative estimate, the EPS is expected to grow by approximately 4%, supported by a roughly 7% free cash flow yield after dividends. This cash flow is seen as an opportunity for Molson Coors to reduce debt or pursue share buybacks.
Secondly, the analyst points out potential catalysts that could positively impact the cost of goods sold per hectoliter (COGS/HL). These catalysts alone are estimated to be worth around $0.60 per share, which could provide an additional boost to the company's financial performance.
The third point highlights Molson Coors' current valuation, which is deemed historically low. Trading at 9.3 times the estimated EPS for the calendar year 2026, the stock is below the 5 and 15-year average multiples of 12.5 and 14.5 times, respectively. The analyst suggests that given this valuation, any positive catalysts could lead to significant gains, particularly if there is a resurgence in beer consumption in the summer of 2025, referred to as a potential "summer of beer."
The upgrade reflects Wells Fargo's confidence in Molson Coors' ability to generate steady growth and capitalize on future market opportunities, positioning the company as a desirable investment as it heads into 2025.
In other recent news, Molson Coors has experienced significant developments. The company's third-quarter earnings call revealed a decrease in net sales and volumes, with consolidated net sales revenue down by 7.8% and U.S. financial volume dropping by 17.9%, attributed to macroeconomic challenges and the exit of the Pabst contract brewing. Despite this, Molson Coors has reaffirmed its commitment to mid-single-digit growth for underlying pre-tax income and earnings per share, supported by share repurchase efforts.
In terms of analyst interactions, HSBC downgraded Molson Coors' stock from Hold to Reduce, citing concerns about the company's growth potential, particularly in light beer offerings. Similarly, CFRA downgraded the stock from a Strong Buy to a Hold, also lowering the price target to $57.00.
Despite these challenges, Molson Coors reported an 8% volume increase for their Coors Banquet brand and increased its stake in Zoa, a non-alcoholic energy drink, to 51%.
InvestingPro Insights
The Wells Fargo analyst's upgrade of Molson Coors (NYSE: TAP) aligns with several key insights from InvestingPro. The company's financial metrics and market position support the analyst's optimistic outlook.
InvestingPro data shows that Molson Coors is currently trading at a P/E ratio of 12.79, which is indeed relatively low and supports the analyst's view on the stock's valuation. This is further reinforced by the company's price-to-book ratio of 0.88, suggesting the stock may be undervalued relative to its assets.
Two relevant InvestingPro Tips highlight Molson Coors' financial strength and shareholder-friendly policies. Firstly, the company "has maintained dividend payments for 50 consecutive years," demonstrating a long-term commitment to returning value to shareholders. This consistent dividend history aligns with the analyst's projection of a strong free cash flow yield. Secondly, "management has been aggressively buying back shares," which could contribute to the EPS growth forecasted by the analyst.
The company's dividend yield of 3.1% and a dividend growth rate of 7.32% in the last twelve months further support the analyst's positive outlook on shareholder returns. These metrics, combined with the company's profitability over the last twelve months, suggest that Molson Coors is well-positioned to deliver on the growth expectations outlined in the Wells Fargo upgrade.
For investors seeking additional insights, InvestingPro offers 5 more tips that could provide a deeper understanding of Molson Coors' investment potential.
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