Is The Market Pricing Craft Brew Alliance Fairly?
Craft Brew Alliance (NASDAQ: BREW) is the sixth largest craft brewing company in the U.S., and has worked hard to strengthen its top-line, improve the health of its business, and put itself in a good position for a successful future. Its growth is led by Kona Brewing, which includes brands such as Big Wave and Longboard Lager, and 2017 represented the eighth consecutive year of double-digit growth for Kona. The company has also managed to grow its beer gross margins by nearly 500 basis points in the past four years, resulting in the gross profits improving by a third in the time period. Besides the above, Craft Brew Alliance has also expanded its partnership with Anheuser-Busch InBev (NYSE:BUD), and in this respect, will take on brewing responsibilities for Anheuser-Busch’s craft beer subsidiaries, in cases where using the A-B facility would be inefficient. On the whole, while 2017 was a challenging year in the craft beer space, it was a record one for BREW.
We have created an interactive dashboard analysis to estimate Craft Brew Alliance’s valuation based on its expected revenues for FY 2018. You can make changes to these variables to arrive at your own price estimate for the stock.
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We have arrived at a $22.76 price estimate for Craft Brew Alliance based on revenue projections of $221 million for 2018, a P/S multiple of 2, which is slightly higher than that for 2017, but still lower than the industry average, and a share count of 19.45 million. The market price stood at $18.90 as of March 12, which is roughly 20% lower than our price estimate.
Craft Brew Alliance’s revenue comes from three sources: A-B & A-B Related Revenue, Contract Brewing & Beer Related Revenue, and Brewpubs Revenue. The former two segments include brewing, and domestic and international sales, of craft beers and ciders from its breweries, while the latter constitutes the operation of five brewpubs.
We estimate Craft Brew Alliance’s revenue using the following steps. The revenue per barrel and number of barrels have been estimated for the three segments. The revenue for each segment is arrived at by multiplying the two metrics. The total revenues for BREW are then calculated by adding the revenues for the three divisions.
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