Boston Beer ($SAM) just hit a new 52 week high today so figured I would give a few thoughts on why I think it continues to move up in the coming days and into early 2018:
Tax Reform
If the market is truly a forward looking mechanism, then Tax Reform should be somewhat baked into Boston Beer's ($SAM) valuation. But I think much of the stocks 24% gain since August 1st is based more on the hopes of the company returning to growth in 2018 after two solid earnings reports and not so much on the big boost the company will get going to a 21% effective tax rate from a 37-38% effective tax rate. Boston Beer's ($SAM) high tax rate has always been a thorn in the side of the companies founder, as you can read here : https://www.bostonglobe.com/business/2015/07/31/jim-koch-says-will-last-american-owner-boston-beer/VC5PlNiBaVeEFlG5o2AHyK/story.html and watch here: http://money.cnn.com/video/news/2016/04/12/boston-beer-sam-adams-jim-koch.cnnmoney/index.html so this is welcome news. There is also a bigger benefit for Boston Beer that I think many are unaware of that should boost profits another $900k... for brewers under 6 million barrels :
$SAM with about 4 million barrels : https://t.co/7dC0uTLiPd pic.twitter.com/YUJ64bgeP3
— Option Millionaires (@OMillionaires) December 23, 2017
The companies return to growth coupled with the Tax Reform should be enough to catapult shares over $200 into 2018 but I think there is more:
The BuyBacks
Boston Beer ($SAM) has been aggressively buying back shares the past few years, nearly 2 million in 2016 and 2017 alone or over 16% of their outstanding share count. Of course some of the buyback is to help mitigate dilution from stock compensation but it is still a meaningful amount. And they also have close to $200 million left in their buyback authorization. If there is any silver lining from the stocks drop from $325 in 2015 is that the company has been buying shares near multi-year lows at nearly a 50% discount. Add the 28% short interest totaling over 2 million shares, and you have quite the recipe for a short squeeze.
Fenway
Something also not factored into the stock is the recent deal to be the Official Beer of the Red Sox: http://www.bostonglobe.com/business/2017/12/12/long-bud-sam-adams-new-official-beer-red-sox/1R4vjX9rKhhI9fK7WiAcKP/story.html?event=event12 . How that plays out in 2018 is yet to be seen, but certainly a positive catalyst. Will likely hear more details on their earnings conference call in February.
The Setup
The stock looks set to breakout over multi-year resistance at $194-195 with a bullish crossover. Think it tests $210 in the coming days. The $240 gap fill is not out of the question in the first few months of 2018, but will need to have a solid 4Q earnings report with upside guidance:
Longer term view(multi-year resistance):
We are currently holding the Jan $210 calls:
Happy Trading!
-JB