Molson Coors Gets Two Price Hikes In Wake Of Earnings
Molson Coors (NYSE: TAP) has been working on a revitalization plan that includes premiumization of the portfolio and the analysts are buying into it. At least two major sell-side firms including Citigroup and Morgan Stanley have come out in the wake of the Q4 earnings report to up the price targets if not the rating. Morgan Stanley upped its price target to $51 compared to the Pricetargets.com consensus of $53.78 while Citigroup raised its target by $6 to $58.
These targets assume the stock is fairly or only slightly undervalued at these levels but this is a notable change in trend. The consensus rating is still only a Hold but if high-profile companies like Morgan Stanley and Citigroup are upping their targets there is a reason. In our view, it's because the shares are undervalued, the company is deep in a turnaround, the outlook is positive, and the analysts think this stock is going to move higher.
The institutional activity may be a headwind in the near term but we see this trend changing too. The analysts have been net bullish on the stock over the past four quarters but selling has outpaced buying so far in 2022. This may be because of rotation or rebalancing but, regardless, selling in the first 7 weeks of the year is worth about 4.5% of the market cap and no small amount. There has been no data since the earnings report was released.
Molson Coors Falls In Wake Of Earnings
Molson Coors had a good quarter but top-line and bottom-line results are bolstered by price increases and there are some red flags in the report. The company reported $2.62 billion in net sales which is up 14.2% versus last year and beat the consensus by $0.07 billion or about 270 basis points. The problems start to arise, however, with the news revenue gains are underpinned by pricing increases (not really a surprise) and business contracted in the Americas. The EMEA/APAC region produced all the growth and that, too, was underpinned by price increases.
Moving down, the news is equally mixed in that the EBITDA margin widened by 21.9% but not enough to please the analysts. The company’s GAAP EPS of $0.81 is up double-digits from last year but missed the consensus by $0.04 despite the top-line strength. The takeaway, however, is that EBITDA margins are improved and expected to improve further which is great news for the balance sheet and the dividend.
Turning to the guidance, the company is expecting mid-single-digit revenue growth with margin expansion driving EBITDA higher by high-single-digits. The company is also forecasting balance sheet improvements with leverage expected to fall below 3.0X EBITDA. This compares favorably to the Pricetargets.com consensus which is expecting only low-single-digit revenue gains and we see upside risk in the outlook.
The Technical Outlook: Molson Coors Slips, Trend Is Still Up
Shares of Molson Coors slipped in the wake of the Q4 earnings report and guidance but the trend is still up. The price action is finding support above the 30-day and 150-day EMAs with bullish indicators to support it. In our view, the stock is offering a textbook trend-following entry point and will likely move higher in the short to mid-term. The next target for resistance is at the most recent high near $52.80, a move above that level should take the stock up to the $56 level and then possibly higher.
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