Malt beverage products maker
Molson Coors Brewing Company (NYSE: TAP) shares are still trading well below its pre-COVID peaks in February. The advent of stay-at-home mandates causing beer sales to drop during the pandemic is reversing as more bars and restaurants reopen. Fears of resurgence and a second-wave spread of COVID-19 infections have kept drinking establishments closed or capacity restrained for most geographies. The key catalyst is the FDA approval and distribution of a COVID-19 vaccine. Just as key
competitors are seeing a recovery with the restarts and
diversifying product lines.
With shares underperforming the benchmark S&P 500 index (NYSEARCA: SPY) there is more room to the upside as vaccine approvals get closer. Prudent investors can monitor shares for opportunistic pullback entries to gain exposure ahead of the industry rebound.
Q2 FY 2020 Earnings Release
On July 30, 2020, Molson Coors released its fiscal second-quarter 2020 results for the quarter ending June 2020. The Company reported an earnings-per-share (EPS) profit of $1.55 excluding non-recurring items versus consensus analyst estimates for a profit of $0.64, beating estimates by $0.91. Revenues few (-15.1%) year-over-year (YoY) to $2.5 billion beating analyst estimates for $2.4 billion. Various government pandemic relief programs enabled the Company to benefit from over $500 million in deferred tax payments which Molson expects to pay a significant portion in 2H 2020 into FY 2021.
The effects of COVID were most prevalent in Europe with sales being down (-44.6%) YoY as the Company relies mostly on off-premise sales (bars and restaurants). Total cash and cash equivalents were $780.8 million at the end of the Q with net debt around $7.9 billion. Molson Coors continues to deleverage with cash flow which is why it suspended 2020 dividends. This has enabled it to lower its debt to EBITDA ratio to 3.4X. The Company didn’t provide any forward guidance due to uncertainty from the effects of COVID-19.
Topo Chico Hard Seltzer Launch
On Sept. 29, 2020, Molson Coors announced a collaboration with The Coca-Cola Company (NYSE: KO) to manufacture, market and distribute Topo Chico Hard Seltzer in the U.S. The brand fuses purified sparkling water with a gluten-free alcohol base and natural flavors and minerals. The 2021 launch will include four flavors: Exotic Pineapple, Tangy Lemon Lime, Strawberry Guava and Tropical Mango.
Diversifying Beyond Beer
While competitors are perhaps overleveraging in the crowded alcoholic seltzer market, Molson Coors is diversifying its own niche lines of non-alcoholic beverages to a wider audience including those under the legal drinking age limits. The HUZZAH flavored seltzer product is infused with probiotics to promote healthy gut and less than 3 grams of sugar. MadVine is a 100% plant-based zero-calorie diet soda with zero artificial ingredients and zero sugar. This beverage is infused with unique flavors including monk fruit and “recognizable ingredients” including bourbon vanilla, yuzu lemon and black cherry. Golden Wing is a grain-based milk alternative beverage loaded with protein and nutrients with no additives. The Company also has an energy drink geared towards gamers to improve focus and performance without the jitter side-effects found in the current caffeinated drinks in the market. Where Molson Coors lacks in the premiumization trend with upscaling beers, it’s making up with the diversification of non-alcoholic beverages to a wider consumer demographic. Barring a second wave of COVID-19, the acceleration of global restarts should provide headwinds for Molson Coors domestic and global business. The sentiment can be drastically lifted with the FDA approval of a Covid-19 vaccine in the upcoming months. Prudent investors can get a jump on this by monitoring opportunistic pullback entries.
TAP Opportunistic Pullback Levels
Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for TAP stock. The monthly rifle chart has been in a multi-year downtrend that accelerated on the inverse pup breakdown triggered in February 2020 by the pandemic plunge. Unfortunately, the $36.72 lows didn’t last long as the coils to the monthly 5-period moving average (MA) were deflected at the stochastic 20-band. The monthly stochastic is now stalled again under the 20-band ready to either form a mini inverse pup collapse or crossover back up towards another 20-band break attempt. The weekly rifle chart indicates a stochastic cross up attempt forming if shares can hold steady above the 15-period MA. If the weekly stochastic can cross back up, it would signal a divergent bottom indicating the higher stochastic crossover point with upside towards the original weekly market structure low (MSL) trigger at $41.55 (one-tick above the $41.44) for upside towards the $42.58 Fibonacci (fib) level to the $44.68 monthly 15-period MA. Meanwhile, the daily pullback can present opportunistic pullback levels at the $$34.96 fib, $32.94 fib, $30.76 fib and the $27.11 fib. Traders can gauge the group sentiment by monitoring shares of BUD and SAM as leading peers to the laggard TAP.
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