Molson Coors tumbles after Bank of America hits it with a dreaded downgrade and price-target cut


Molson Coors stock fell as much as 3.5% after Bank of America Merrill Lynch hit the beer company with a double downgrade and price target cut.

The bank changed its rating for the stock from “buy” to “underperform,” citing concerns around lagging growth in the US beer industry and Molson Coors having to spend more to maintain market share for its key brands. Its revised price target is down to $US50 from $US70 per share, representing a 28.6% cut. Molson Coors stock traded at $US52.96 per share as of 11:00 a.m. ET.

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The analyst note said that, although the company’s acquisition of MillerCoors and Miller International in 2016 was handled well from a cash flow perspective, lagging sales and a weakening interest in US beer should worry investors.

“In the post-acquisition time frame, growth in the US beer industry (and more broadly food and beverage) has, in our view, become more expensive. This has caused many companies to step back profit ambitions to rekindle growth,” BAML analysts Bryan Spillane, Christian Junquera, and Peter Galbo said.

The note said the beer company is threatened by consumers’ decade-long migration from economy beers to higher-end brands. Molson Coors is less exposed to the high-end beer segment than its main competitors AB InBev and Heineken, and the bank expects the company’s volume to decrease as the trend continues.

The brewer is increasingly threatened by non-beer alcoholic beverages as well. The “Beyond-Beer” sub-segment, comprised of products like hard seltzers and canned wine, has also grown, further damaging the domestic light beer industry.

“We see heightened potential that TAP will need to increase spending to stabilise market share on core brands and accelerate investments in premium/”beyond” beer segments over the next year. In our view, this could subdue earnings growth in FY19 and FY20,” the analysts said.

Molson Coors currently has 8 “buy” ratings, 10 “hold” ratings, and 3 “sell” ratings, according to Bloomberg data. The stock’s consensus price target is $US64.06 per share.

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Coors Chart