Event: Shares of craft beer maker Boston Beer (SAM) fell more than 3% in Monday morning trading after UBS downgraded the stock. UBS moved Boston Beer to a sell rating from a neutral rating. Shares of Boston Beer, which brews Samuel Adams beers, are up about 10% over the last month of trading.
Analysis: This might be a Wall Street rating to pay attention to. While the craft beer market appears to be doing well with many smaller brands gaining traction, the leader in the space might be peaking. Shares of Boston Beer peaked this summer, but that was before the company announced that it had missed earnings estimates in the June quarter. The big miss precipitated a near $30 decline in the stock price. A late summer/early fall rally has the stock rebounding, but clearly UBS is not buying the gains. Could Boston Beer deliver another miss in the current quarter? It is more than possible. Despite the miss in the last quarter, estimates for the September quarter are up 6 cents per share over the last 90 days. Shares of Boston Beer are expensive relative to expected growth in earnings. Analysts expect the company to grow profits by 14% in 2013. At current prices, shares trade for 23 times 2013 estimated earnings.
Action: I typically like owning put options immediately prior to an earnings event. With the cat out of the bag in the form of a downgrade from UBS, this one becomes tradable now. I would own a put option on this up and through Boston Beer’s next earnings report due on Oct. 29.
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