Making TAP a Best Idea Short
We are moving Molson Coors higher on our shortlist to the best idea. What kept us from making Molson Coors the best idea was 1) the recovery in the on-premise channel, 2) positive earnings revisions, and 3) low sentiment. Recent data points have caused us to view the risk/reward more favorably to the short side.
The core beer business remains in a secular decline that is accelerating from hard seltzer share gains. Domestic premium light beers run the risk that a younger generation may stick with the alternative low-calorie alcoholic beverage for the rest of their lives. Molson Coors has focused on hard seltzer in 2021 to recapture share losses. The company is at risk for being the last major entrant to the increasingly crowded category.
Molson Coors recently had a cybersecurity incident that caused the company to take its systems offline. This has caused manufacturing to be shut down, and inevitably production volumes will be missing. On Friday, we had a call with a Molson Coors distributor that confirmed the product shortages. CLICK HERE for a replay.
The shares are trading at 13x 2021 EPS expectations and 8.7x EBITDA. However, in the past month, shares have increased 11% while the S&P 500 is near flat. The company’s 3.5x leverage may be preventing management from making the necessary investments to address the market share losses. The combination of share losses and high leverage limits its valuation multiple. We see shares having 30%+ downside to the levels seen in the fall and 12% upside to $55 as attractively balanced. Our position monitor is below:
For the full write-up, please see our separate note.
February wine DTC sales (BSPE)
ACCORDING TO WINES VINES ANALYTICS, winery DTC shipments rose 17% in February to more than $300M (as seen in the chart below), while volume rose 23% to nearly 650,000 cases. In 2020 DTC volumes of wine shipments had the largest year of growth at 27%. The average price of a bottle decreased 9.5% to $36.83 in 2020, yet shipments of wines under $30 grew 41.6% while wines above $100 per bottle fell 2%. Sales of all U.S. wine totaled $66.4B in the year ended February, down 12% to the previous 12 months. Domestic wine sales fell more than 8% to $46.5B in the year ended February. For the month of February, sales fell 6%.
Both Vintage Wine Estates and Duckhorn (NAPA) were able to grow their toplines during the pandemic because of their DTC segments, including wine clubs as well as off-premise sales offsetting on-premise sales. We are hosting a webcast with Vintage Wine Estates and Bespoke Capital Acquisition Corp's management teams at 2 PM EST on Tuesday. We hope you can join us.
Innovation in packaging opens up wine occasions (NAPA)
Glass is the dominant packaging material for U.S. wines, accounting for 77% of the volume of wine sold through off-premise channels in the year ended February 20. Wine sales in the standard 750ml bottle represented 44% of total off-premise sales. Off-premise sales favored box wines which were up 21% by value and 16% by volume. Plastic grew 27% by value and 26% by volume. Cans grew 64% by value and 71% by volume. Smaller glass packaging was the fastest growing (as seen in the chart below), with table wines packaged in 375ml glass exceeding $40M in the past year.
The growth in alternative wine packaging has opened up occasions for wine consumption, helping drive growth. This year will see more innovation in wine-based drinks like seltzers as well as packaging.
