Options Trade – Boston Beer Co Inc (NYSE:SAM) Calls
Sunday, February 23, 2014

**OPTIONS TRADE: Buy the SAM Jun 2014 250.000 call (SAM140621C00250000) at or under $9.00, good for the day. Place a protective stop limit at $3.60 and a pre-determined sell at $20.00.

by Ian Harvey

February 23, 2014

Introduction

Samuel Adams maker, Boston Beer Co Inc (NYSE: SAM), will report its fourth quarter results after the market close on February 25. Headed into the report analysts are expecting earnings of $1.51 per share. The stock has underperformed the broader market in 2014, losing 6.9% year to date.

The stock traded lower during January with the rest of the market, but as the market improved during the first part of February so has Boston Beer. The stock is coming off a strong 2013, during which it gained over 70%, so it was not surprising to watch the stock trade lower along with the overall market during January, just as it was not surprising to see it rebound when bullish sentiment returned to the market. The company has shown impressive growth in recent years, as craft beer has risen in popularity. Boston Beer is most closely associated with the Samuel Adams line, but the company has been smart to diversify, which has allowed it to rely less on the success of the Samuel Adams brand.

Company Details

The Boston Beer Company, Inc. (Boston Beer) is a craft brewer in the United States. During the year ended December 31, 2011, Boston Beer sold approximately 2.5 million barrels of its products (core brands) and brewed or packaged approximately 13,000 barrels under contract (non-core brands) for third parties.

During 2011, the Company sold over fifty beers under the Samuel Adams or the Sam Adams brand names, seven flavored malt beverages under the Twisted Tea brand name, three hard cider beverages under the Angry Orchard brand name and one hard cider under the HardCore brand name.

Boston Beer produces malt beverages and hard cider at Company-owned breweries and has contract arrangements at other brewery locations.

The Company-owned breweries are located in Boston, Massachusetts (the Boston Brewery), Cincinnati, Ohio (the Cincinnati Brewery) and Breinigsville, Pennsylvania (the Pennsylvania Brewery).

During 2011, the Company launched the Angry Orchard brand family.

Key Statistics for SAM

Current P/E Ratio (ttm) 44.8456
Estimated P/E(12/2013) 42.4754
Relative P/E vs. SPX 2.6463
Earnings Per Share (USD) (ttm) 5.1080
Est. EPS (USD) (12/2013) 5.3930
Est. PEG Ratio 2.2474
Market Cap (M USD) 2,938.66
Shares Outstanding (M) 8.82
30 Day Average Volume 76,864
Price/Book (mrq) 10.3684
Price/Sale (ttm) 4.2626
Dividend Indicated Gross Yield -%
Cash Dividend -
Dividend Ex-Date
5 Year Dividend Growth -
Next Earnings Announcement 02/25/2014

Technical Analysis

SAM was recently trading at $229.07, down nearly $36.00 from its 12-month high and roughly $85.00 above its 12-month low. Technical indicators for SAM are bullish and the stock is in a strong upward trend. The stock has support above $202.80 and resistance below $231.50.

Earnings

Boston Beer last issued its quarterly earnings data on Wednesday, October 30th. The company reported $1.89 earnings per share (EPS) for the quarter, beating the consensus estimate of $1.82 by $0.07. The company had revenue of $216.40 million for the quarter, compared to the consensus estimate of $200.42 million. During the same quarter in the previous year, the company posted $1.53 earnings per share. The company’s revenue for the quarter was up 30.0% on a year-over-year basis. On average, analysts predict that Boston Beer will post $5.40 earnings per share for the current fiscal year.

Boston Beer's fourth-quarter results are due out after the market closes on Feb. 25 and analysts project substantial growth. Here's a breakdown of the estimates and a year-over-year comparison:

The company is expected to grow revenues 16.7% in 2014, and earnings are forecast to rise 19.1%. Should the company post earnings in-line with the $1.51 analysts have forecast, it would mark a 19.8% over the same period last year, and should help the stock continue to regain some of its January losses.

It is believed that these earnings expectations are attainable and they will actually be exceeded due to better-than-expected volume growth caused by the holiday season and the cold weather. It is thought that Samuel Adams and Angry Orchard will lead the way again, as people kept their fridges stocked with these two popular brands for their many family dinners and the times when they were snowed-in. In terms of guidance, Boston Beer will provide in-line guidance, so the company can follow the popular "under-promise and over-deliver" method of forecasting.

Analysts Opinions

Analysts at RBC Capital initiated coverage on shares of Boston Beer in a research note on Monday, November 25th. They set a “sector perform” rating and a $251.00 price target on the stock.

Also, SAM has been the subject of a number of research reports:-

• Analysts at Zacks downgraded shares of Boston Beer from an “outperform” rating to a “neutral” rating in a research note to investors on Monday, November 4th. They now have a $261.20 price target on the stock.

• Finally, analysts at Williams Capital upgraded shares of Boston Beer from a “market perform” rating to an “outperform” rating in a research note to investors on Monday, November 4th. They now have a $263.00 price target on the stock, up previously from $210.00.

Two research analysts have rated the stock with a sell rating, three have assigned a hold rating and one has assigned a buy rating to the company’s stock. Boston Beer has an average rating of “Hold” and a consensus price target of $233.37.

Conclusion

Boston Beer is an American powerhouse and consumers cannot seem to get enough of its many brands. The stock has had a great run over the last year with a rise of more than 50%, and it is likely to continue its run higher on strong earnings. The fourth-quarter report is due out on Feb. 25 and it is believed that Boston Beer will exceed analysts' expectations; this could propel the stock back toward its 52-week high, which it sits more than 15% below today, so investors should strongly consider initiating this call option right now.

Therefore, based on the facts above the following options trade is recommended…..


**OPTIONS TRADE: Buy the SAM Jun 2014 250.000 call (SAM140621C00250000) at or under $9.00, good for the day. Place a protective stop limit at $3.60 and a pre-determined sell at $20.00.



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