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The Stock Advisors
The Stock Advisors
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On Tap With Molson Coors Brewing Company

April 01, 2009 | About:

"Molson Coors Brewing Company (NYSE:TAP) is a way to drink your way to profits," jests Jonas Elmerraji.

In the The Rhino Report, the newsletter advisor suggests that in the current economic downturn, the brewer is well-positioned to benefit as consumer scale down from more expensive beer brands. Here's his review.

"The stock price of TAP has slid in price in recent months, largely the result of underwhelming Wall Street in its latest earnings release a month ago.

"The company posted earnings of $96.8 million, or $0.44 per share, missing analyst estimates by 30 cents per share. But digging deeper reveals a quarter that wasn’t quite as bad as Wall Street made it out to be.

"While increasing input costs (like the barley and hops that go into beer) accounted for some of the decline in income last quarter, the biggest reason for the drop in earnings was because of currency translation.

"The company says that excluding currency translation losses, income only declined 7% from the same quarter last year.

"That means that were it not for the situation caused by currency conversion, TAP would have actually announced earnings of $0.88 per share -- beating analyst estimates for the quarter by more than 23%!

"Meanwhile, for 2008 Molson Coors saw higher sales volume and underlying income than in 2007. People are buying more beer, and Molson Coors’s brand positioning puts them in a prime position to benefit from consumers who are looking to downgrade from more expensive 'gourmet' beer brands like Sam Adams.

"From an investment standpoint, Molson Coors is an attractive stock right now. Analysts continue to underestimate Molson Coors’s ability to perform.

"The current consensus on Wall Street is earnings for next quarter of $0.35 per share. That’s a full 20% lower than the $0.44 per share the company booked (and the analysts balked at) last month.

"TAP’s large market cap and low beta (a measure of risk relative to the rest of the market) make it a sensible buy. As the company adjusts for the current economic climate, its value will likely reflect what I see as a huge opportunity in a relatively recession-resistant industry."

The Stock Advisors


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