Courtesy of Dr. Paul Price
The NHL’s lack of play due to union problems has hurt Molson Coors’ (TAP) sales, especially in Canada. TAP holds a 40% Canadian market share, second only to Anheuser-Bush InBev (BUD). Q4 profits are going to be down and the stock has sold off in anticipation.
TAP shares closed on Friday at $39.83. That’s a 14% drop just since September 14th. The shares are not far from their lows since mid-2009.
Canada’s Molson combined with Colorado’s Aldoph Coors back in February of 2005. That year they earned a pro-forma $1.98 per share. TAP earned $3.22 through the first three quarters of 2012 versus $2.68 a year ago. Despite the hockey lock-out TAP is expected to show $3.84 for the year ending December 30th.
A seven-year, 94% increase in EPS might look shabby to Apple but most companies would be pleased. Sustaining that rate over the long-term would represent about 10% annualized growth. Molson-Coors did it during one of the worst economic periods in recent memory.
Molson Coors shares have not kept pace with the improvement in fundamentals. That’s a good thing if you’re buying today. Today’s price is just 10.4x this year’s already reduced estimate. That low P/E is right in line with the valuations at each of TAP’s most recent best buying opportunites.
The dividend rate is now 32-cents quarterly. That’s exactly double the level in 2005. The attractive and well-covered 3.21% current yield is the best ever for holders of Molson-Coors.
Value Line assigns TAP an above average safety rank while noting they fall into the 90th percentile (100th is best) in terms of both stock price stability and earnings predictability.
Morningstar favors the shares with a 4-star ranking (out of 5). They see fair value as $55 using a projected multiple of about 14x forward earnings. That would still be a discount to TAP’s actual post-merger average P/E of 14.7. Rival BUD has averaged > 18x EPS since their own mega-merger in November of 2008.
The lowest calendar year high since 2007 was this year’s $46.35. Simply rebounding to that level would bring a total return of almost 20%. That looks quite appealing on a low risk stock, especially in a ZIRP world where 10-year treasuries now yield less than 1.6%.
I’m using some of our cash reserves to add approximately 100 shares of Tap to our model portfolio as a new position. When the NHL puck drops I expect TAP to elevate.
Paul’s Virtual Portfolio Spreadsheet as of 11/19:
Note: Paul took VIRTUAL PORTFOLIO profits on ANF on Nov. 15 at $41.80. The stock is now higher, trading at $43.80. More here.