UBS Downgrades Molson Coor, Keurig Dr Pepper and Boston Beer as 'Normalization on the Horizon'

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By Sam Boughedda

UBS analyst Peter Grom, in a note to clients on Tuesday, downgraded Molson Coors (NYSE:TAP), Keurig Dr Pepper (NASDAQ:KDP), and Boston Beer Company (NYSE:SAM) to Neutral from Buy, stating that while they believe US beverages will deliver sustainable organic revenue outperformance in the longer-term, they see a normalization on the horizon as reopening catalysts dissipate.

“Our detailed bottom-up framework suggests that growth will become more differentiated across the group looking ahead and with Bevs having outperformed HPC by roughly 15% YTD and trading at a ~20% premium (vs. 5-yr avg. of +13%), we think investors should become selective within the group,” said Grom. “Our analysis suggests that KO, PEP, STZ, and CELH will see continue to see higher levels of organic revenue growth vs. peers and as such offer compelling risk/reward. We are moving to the sidelines on TAP, SAM, and KDP as we expect growth to moderate looking ahead.”

The analyst added that growth will be more differentiated across beverages beyond 2022.

“The degree to which on-premise occasions have returned to pre-pandemic levels varies by company, but our channel/category analysis suggests that most of this catch-up will be complete by the end of CY22, and we expect investors will focus on companies that can deliver outsized organic revenue growth LT,” added Grom.

“The return of on-premise has led to outsized growth for TAP, and while we believe in the company's LT strategy, we think moderating growth in '23E will make it difficult for the stock to re-rate. For SAM, we believe weaker-than-expected hard seltzer growth could drive downside to Street estimates. Finally, we view the KDP risk/reward as balanced at current levels and would wait for a more attractive entry point.”