Is it time to tap Molson Coors or will beer sales fall flat?

Molson Coors Beverage (NYSE: Tap, That’s down more than 7% after the company reported mixed earnings on Aug. 2. Profits for the adult beverage company came in at the right numbers at $1.19 per share. However, revenue was a slight decrease to $2.92 billion with forecast calls of $2.94 billion. – MarketBeat

On a brighter note, management maintained its forecast of revenue and earnings for the full year. But that may not be enough for investors who see the company as trying to rely on its premium brands to lift it through a volatile economy.

In this article, we’ll look at what the company said and some things you might want to consider before taking or adding a position in TAP stock.

Premium sales are on the rise

The good news is that Molson Coors revenue is back to pre-pandemic levels. The company reports that this is due to a significant increase in on-premises sales. Molson Coors pointed out that on-premises sales are still not at their pre-pandemic levels. However, it stands at 93% of pre-pandemic levels and continues to grow revenue on a sequential basis.

As stated by the company it is part of The company’s “premiumization” strategy, According to President and Chief Executive Officer (CEO) Gavin Hattersley, the company’s “above-premium brand” contributed to a record high portion of our global portfolio net sales revenue on a 12-month basis. And the net sales revenue of the company’s US premium portfolio now exceeds the net sales revenue of its US economy portfolio on a 12-month basis.

If this trend continues, it could reverse the trend that Molson Coors has no pricing power as the popularity of craft beer continues to grow. But a compelling argument for this thesis is the weakening of the global economy. There is already evidence of consumers “doing less” for lower-priced brands. However, if the economy continues to weaken, the company says it has a portfolio of brands that allows the company to compete at different price points.

Balance sheet getting stronger

Molson Coors is continuing to do solid work to pay down its debt. And as the company notes, most of its $6.4 billion net debt is of the fixed rate kind. That is, an increase in interest rates will reduce its effect. However, debt is debt. And it’ll still be a headwind on earnings if the company can’t find a way to significantly increase revenue.

So how likely will it be that the company will continue to grow revenue? On the one hand, Molson Coors is acknowledging that it is facing inflationary pressures. On the other hand, the company is planning to increase the prices in the fourth quarter.

Fundamentals suggest TAP stock is cheap

The company’s current price-to-earnings ratio is 10.97 and the forward P/E ratio is just under 12x earnings. And the company’s profit margin of 10.13% is higher than the region’s average of 6.61%.

Post-earnings analysts are lowering their price targets for TAP stock. And at the current price of $54.19, the stock is trading above the consensus price target.

Molson Coors stock, on the other hand, is up 19% in 2022 which is no small feat. And if the company delivers a surprise upside in revenue, the stock could reward investors. But if it doesn’t, the TAP stock may remain capped as it lasts for several months.