The tech selloff and market’s rotation into value stocks has been dominating headlines lately, but Goldman Sachs (NYSE: GS) said this week that there is a buying opportunity in three beverage stocks that have been flying under the radar.
Analyst Bonny Herzog reiterated her Buy ratings on Boston Beer (NYSE: SAM), Constellation Brands (NYSE: STZ), and Monster Beverage (NASDAQ: MNST) in a note this week, noting that each of the three trades below their historical premium and should see a boost from the economic reopening.
Herzog added Constellation Brands to the firm’s Conviction List last month with a $275 price target – 18% higher than the price as of this writing. The analyst cited “faster and more profitable growth to come,” and said Constellation’s valuation is “compelling” trading at 18.5 times next year’s earnings which is especially compelling given the company is “one of the best growth stories across the U.S. Staples universe and advantageously levered to the most attractive opportunities in alcoholic beverages.”
The Goldman analyst argues Constellation’s Modelo brand is seeing significant momentum and is likely to see $4 billion in sales by fiscal 2026. Herzog is also bullish on the company’s Corona Hard Seltzer product, which she expects to double in shipment volume this year.
One other benefit is Constellation’s 40% stake in marijuana producer Canopy Growth (NASDAQ: CGC), which is expected to gain broader access to the U.S. market this year. Canopy CEO David Klein said last month that the cannabis company’s relationship with Constellation “is becoming closer,” and the two companies are expected to debut products with THC sometime in 2021.
As for Boston Beer, Herzog said the company’s first-mover advantage in the hard seltzer category is “one of the few big growth opportunities in alcoholic beverages,” and is both “sustainable and broadly defensible” even with rising competition given that Boston Beer’s Truly brand looks set up to capture much of the category’s strong momentum this year.
Herzog argues Boston Beer’s full-year guidance looks conservative, and has a $1,375 price target on the stock – nearly 28% higher than the current share price.
RBC Capital Markets analyst Nik Modi also likes Constellation and Boston Beer, issuing Outperform ratings for both, and naming Boston Beer as his favorite pick of all U.S. beverage companies.
Modi argues that the hard seltzer category could soon be as large as the alcoholic imports category, which would benefit both stocks, and would represent around 150% growth from estimated 2020 levels.
And as for Monster Beverage, Herzog issued a $107 price target indicating nearly 21% upside.
The Goldman analyst said her industry contacts suggest Monster will see more shelf space in stores given the rising popularity of energy drinks, and said Monster is “indeed planning a clean/super-premium energy drink” that is likely to be available later this year or in early 2022 and could boost the stock.