Heady Rebound on ‘TAP’ for Molson Coors

Molson Coors (TAP)  owns some of the world’s top brands of beer. Its shares commanded over $100 during both 2016 and 2017.

Since then, though, the stock tailed off to a recent low of $32.11. After a minor rebound TAP was still offered on Monday for the bargain price of $35.21.

Momentum traders can stop reading right here. Value investors should be taking notes. At its current quote, the stock sold for just 12.8-times its 2020 estimate and 10.1-times Value Line’s earnings per share projection for its 2021 results.

Those compare quite favorably with TAP’s post-2011 typical price-to-earnings of 18.2-times. Better still, EPS are now expected to grow nicely, well into the future. Value Line sees EPS rising to $4.65 not later than 2025.

Even a partial reversion-to-the-mean valuation suggests TAP could rebound to about $56 by Dec. 31, 2021. Hitting that relatively modest goal would deliver an almost 74% gain from $32.21. 

Yahoo Finance takes an ultra-conservative view on TAP in assuming the shares will only fetch 11.3-times its own 2021 earnings estimate for TAP. Even that well below typical valuation would result in about a very acceptable 25% 12-month gain. 

Independent research house Morningstar is more in line with my own opinion. It now assigns TAP its highest, 5-star, Buy rating. Morningstar deigns to provide year-ahead goal prices, but does let us know what it feels is present-day fair value for each stock it covers.

For Molson Coors that figure sits at $55. Almost 56% above where it’s offered right now. 

Even that target could prove way too conservative. TAP peaked from $61.94 – $112.20 each year from 2014 right through 2020 year-to-date. There’s good reason to believe it will reach those levels again before too long.

Value Line calls for TAP to be $45 by April of 2022. It sees the shares trending to $65 – $95 not later than 2025.

Dividends historically ran about 2.39% before Covid-19 led to a suspension of cash payments in this year’s second quarter. Management has pledged to reinstate quarterly payments as soon as they have once again have clarity about future earnings and cash flow.

Option savvy traders can play TAP via sales of Jan. 21, 2022 puts. The graphic below details actual pricing on TAP’s $40 to $55 strike price puts for that expiration date, with TAP at $35.29.

Worst-case, forced purchase prices dropped to either $31.50, $33.00, $33.90 or $34.60 depending on the strike price employed.

TAP could drop by from 1.9% to 10.7% from its already cheap price without causing losses on those option sales.

Future stock market action can never be guaranteed. That said, owning Molson Coors for the break-even price on the most conservative of those puts sales would have been a winning position 100% of the time dating back more than a full decade.

TAP spent the majority of those ten years hovering between $50 and $95.

Molson Coors is a decent quality company at an indecently discounted price. Don’t miss you chance to stock up on beer while it’s on sale at the best price in years.

Buy some shares, sell some puts or consider doing both.

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