On Friday, BofA Securities adjusted its stance on Molson Coors (NYSE:TAP), upgrading the stock from Neutral to Buy and increasing the price target to $70.00, up from the previous $57.00. Currently trading at $61.40 with a P/E ratio of 13.91, the stock appears undervalued according to InvestingPro analysis. The new price objective is based on 11.6 times the firm's fiscal year 2025 earnings per share (EPS) estimate, marking an increase from the prior multiple of 9.4 times.
The upgrade reflects BofA Securities' expectation that 2025 will represent a return to normalcy for Molson Coors and the broader beer industry, following the full absorption of the Bud Light controversy's impact. The firm anticipates that the U.S. beer industry will align more closely with historical performance levels after a challenging 2024. Molson Coors is also expected to benefit from favorable year-over-year comparisons and the absence of headwinds from the termination of the Pabst contract brewing agreement.
BofA Securities also forecasts that cost inflation will be manageable for Molson Coors, even with the potential for higher aluminum costs. The analyst firm cites strong free cash flow and moderate debt leverage as factors that should enable Molson Coors to continue repurchasing shares. This activity is reflected in BofA's above-consensus fiscal year 2025 EPS estimate of $6.02, which exceeds the Visible Alpha consensus of $5.94.
The firm suggests that if the market's strength following the recent election persists into the next year, and there is a surge in value stocks, Molson Coors could present the most attractive investment option within their consumer staples coverage universe. This outlook is based on the company's relatively stable fundamentals, including an impressive EBITDA of $2.42 billion and strong free cash flow of $1.15 billion.
InvestingPro data reveals the company has maintained dividend payments for 50 consecutive years, demonstrating remarkable financial stability. However, BofA Securities also acknowledges risks to their positive outlook, including the possibility that the beer category may not improve and that tariffs could lead to increased inflation. For a deeper understanding of Molson Coors' financial health and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.
In other recent news, Molson Coors has experienced several significant developments. Wells Fargo (NYSE:WFC) upgraded Molson Coors' stock from Underweight to Overweight, raising the price target to $74, based on expectations of modest earnings growth and potential positive catalysts impacting costs. This upgrade reflects confidence in the company's steady growth and ability to capitalize on future market opportunities.
However, HSBC and CFRA have both downgraded Molson Coors' stock, citing concerns about the company's growth potential, particularly in light beer offerings. Despite these challenges, Molson Coors reported an 8% volume increase for their Coors Banquet brand and increased its stake in Zoa, a non-alcoholic energy drink, to 51%.
Molson Coors' third-quarter earnings call revealed a decrease in net sales and volumes, with consolidated net sales revenue down by 7.8% and U.S. financial volume dropping by 17.9%. This was attributed to macroeconomic challenges and the exit of the Pabst contract brewing. Despite this, the company has reaffirmed its commitment to mid-single-digit growth for underlying pre-tax income and earnings per share, supported by share repurchase efforts.
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