Buy, Sell or Hold: Is it Time for Investors to TAP into Molson Coors?

Almost everyone has overindulged in a beer or three. And while that occasionally turns out to be something of a big mistake, the thirst for beer is hard to quench.

That's one of the reasons why I'm bullish about Molson Coors Brewing Company (NYSE: TAP).

Formed by the merger of Molson of Canada and Coors of the United States in 2005, this marriage joined two companies that have seen it all in the beer business--even to the point where their product was illegal during the days of prohibition.

Even still, both companies managed to not only survive but thrive.

Today, the descendants of the original founders still greatly influence Molson Coors and have a vested interest in the company's profitability and the incentive to keep the family legacies alive and well for future generations.

But that's only a small piece of why I like this company. The better reason is its ability to grow sales.

The Growing Need for a Cold One

In fact, Molson Coors reported a worldwide beer volume increase of 13.9% for 2012 and an increase of 15.3% for the most recently reported quarter. These volume increases translated into a sales increase of 9.9% for the year and 13.9% for the quarter.

Thanks in part to Coors Light overtaking Anheuser-Busch InBev's (NYSE: BUD) Budweiser as the number two beer in the country, the U.S. accounted for most of the gains as it posted a 1.7% increase in sales for the quarter to $1.78 billion.

However, it wasn't all rosy, Canadian sales dropped 7.5% to $471.5 million for the quarter, while in the U.K. sales declined 6.8% to $363.2 million from the prior-year quarter.

Management pointed to a number of issues for the lack of sales - from a new 20% excise tax on consumers in Quebec, to a lockout in the National Hockey League. How this will affect future sales remains to be seen.

But the truth is, Molson Coors has become about a lot more than just Canadian and U.S. sales. The company is also expanding overseas.

Stacking Kegs through Acquisition

Through a $3.5 billion acquisition of StarBev and its nine breweries in April 2012, Molson Coors has become a dominant player in the very attractive Central European beer market.

That's a big positive, since beer consumption per capita is expected to grow at a 3% rate in Central Europe for the next three years, and Molson Coors is ready to serve up several new premium brands, including the area's number one selling beer - Staropramen.

With the addition of StarBev, net sales for the 2012 fiscal year grew 11.4% to $3.92 billion compared with $3.52 billion reported the prior year.

Of course, Molson Coors is still in the midst of bringing StarBev into the fold by working out tactics to lower costs, pay down debt and extend key brands into the area, but a plan is currently in place that offers plenty of upside.

What's more, Molson Coors has kept a keen eye on emerging markets for possible growth with the wheels already set in motion for areas such as India, China, Russia and Latin America -all of which could be great growth areas for the company.

Of course this is not news to Molson Coors who, during its most recent conference call, touted how well it is doing outside the U.S. where it already has a foothold, and where it sees much more opportunity ahead.

Molson Coors Passes the Sobriety Check

Molson Coors does have one big elephant in the room though. Its biggest rival is Anheuser-Busch, which has a commanding 48% of the U.S. beer market.

If price wars between the two were to heat up, many worry that may put a dent in Molson Coors' bottom line. However, with micro-brews and craft-brews slowly gaining market share my guess is those premium beverages would take more of a direct hit in sales than Molson Coors as the consumer regresses back to the cheaper beers.

If, however, the trends still seem to show an increase in higher-grade craft brews, Molson Coors does have some "crafty-like" beers such as Blue Moon and the new Third Shift Amber Lager to promote. In fact, Goldman Sachs analyst, Judy Hong, believes that new products like these could eventually equate to 4% of the company's volume.

Speaking of volume, the company throws off a lot of cash as well.

In 2012, Molson Coors had a strong underlying free cash flow of $864.7 million. With that kind of cash on hand the company will be able to pay back its debt from acquiring StarBev in short order, while at the same time still being able to pay shareholders a nice per share dividend of $1.28 a year or a 2.6% annual yield.

Last Call

Even though Molson Coors may not be a prototypical growth company, it is demonstrating that it does have the ability to expand beyond the U.S. and Canada.

Sure, a lot is riding on whether the struggling economies around the world can rebound. But the company is a consumer staple with a healthy balance sheet, and I feel confident it won't be the baby thrown out with the bathwater when and if the markets stumble.

For those reasons I am a BUYER of Molson Coors.

[Editor's Note:If you have a stock you would like to see us analyze in a future issue, leave us a note in the comments below and we'll add it to our list.]

About the Author:David Mamos brings nearly 15 years of analytical experience to the table with a background ranging from big-picture fundamental analysis to highly technical trading decisions. He began his career working as a financial advisor with Royal Alliance in 2001 and helped clients with portfolio management as well as buy-sell decisions before transitioning to the development, implementation and execution of trading strategies for aggressive investors.

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