October 26, 2012
Written By Patrick McKeough
“Molson Coors Brewing Company (TAP) has completed its $3.4-billion purchase of StarBev, which owns nine breweries in Central and Eastern Europe. In the three months ended June 30, 2012, this acquisition contributed $19.7 million to Molson Coors’s pre-tax earnings. That helped push up the company’s overall earnings by 8.0%, to $250.1 million from $231.6 million a year earlier.
“Earnings per share rose 12.2%, to $1.38 from $1.23, on fewer shares outstanding. Sales rose 7.0%, to $999.4 million from $933.6 million. StarBev contributed $57.3 million to the latest sales figure. The company borrowed $2.9 billion to buy StarBev. As a result, its long-term debt has risen to $4.1 billion from $1.9 billion at the end of 2011. That’s a high 52% of its market cap. However, brewing is a stable business, and StarBev’s cash flows will help Molson Coors pay down this debt. Moreover, Molson Coors feels its brewing expertise and strong negotiating position with suppliers will let it cut StarBev’s yearly costs by $50 million by 2015. [TAP] is down 5% since the company announced the StarBev deal in April 2012. That’s because big acquisitions like this can be risky. Molson Coors should earn $3.91 a share in 2012, and the stock trades at 11.2 times that estimate. The $1.28 dividend yields 2.9%. Molson Coors is a buy.”
Patrick McKeough, The Successful Investor, November 2012