As Bud Light sales drop amid a conservative-led boycott, beer drinkers have flocked to rival Molson Coors Beverage Co. for light-beer alternatives. But as the retreat from Bud reshapes the beer market, Wells Fargo analysts say investors have failed to ask a key question: What if Molson’s gains go away?
Shares of Bud Light’s parent company, Anheuser-Busch InBev
BUD,
have faltered since the boycott began more than two months ago, after Bud Light’s partnership with trans influencer Dylan Mulvaney drew anti-trans outrage and complaints that the brand had “gone woke.” Shares of Molson Coors
TAP,
in turn, have rallied as Bud Light gave up sales to other brands.
The Wells Fargo analysts, in a research note on Friday, said that Molson Coors’ stock seemed “fairly” or “fully” valued but not priced for much of a turn south. And they said there was little indication, at the moment, that Molson was going to give back the beer sales it has picked up due to the boycott of Bud Light.
Still, they said that the beer industry’s difficulties are ongoing. Sales volumes — a measure of the amount of beer sold — are weak amid competition from other kinds of drinks, and the businesses that make and sell beer are sitting on a mountain of unsold brew. With the July 4th and Labor Day holidays approaching, bigger discounts and heftier competition in the beer aisle are certainly a possibility.
“What if share reverses? It’s hard to say right now. We’re not arguing for it,” the Wells Fargo analysts said in a note on Friday. “But, is it reasonable to assume Bud Light cedes all [volume] share without a fight? Probably not.”
The analysts raised their price target on Molson Coors to $64 from $60, but they maintained their version of a sell rating on the stock.
“While things could get better (hike cycle until the share gains are embedded in estimates), the stock now seems to be reflecting estimates far higher than Street consensus, begging the question: does it already factor much of this upside anyway? Maybe. Probably,” they wrote. “The reversal, however, does not seem embedded.”
Shares of Molson Coors were largely unchanged on Friday, down .09%, while AB InBev fell 1%.
By some estimates, the boycott knocked Bud Light off its pedestal as the most-consumed U.S. beer brand. For the four weeks ending June 3, Modelo Especial overtook Bud Light as the top beer, according to Bump Williams Consulting.
And while Wall Street analysts have worried about the long-term impact of the boycott, not everyone has been pessimistic on AB InBev. Deutsche Bank analysts recently upgraded shares of the company to buy from hold, saying “these headwinds are likely to fade even if we do not expect the U.S. business ever to fully recover from its current challenges.”
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