Molson Coors (NYSE:TAP) is a major beer producer that’s seen some relatively volatile price action of late. As the chart below shows, shares of TAP stock have been on a bumpy ride of late, with the stock down roughly 14% over the course of the past six months.
The good news is that Molson Coors has also seen some strong recent price action, bouncing around 10% off of August lows. Let’s dive into whether this rally can continue and if this is a dip that’s still worth buying.
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Strong recent results
As is the case with most companies investors research, diving into the fundamentals is an important first step in assessing whether said company is worthy of a portfolio position or not.
In Molson Coors’ case, it does appear the company is turning the corner on the earrings front. In its second quarter print, Moslon Coors boasted stronger than expected EPS numbers ($2.05 versus consensus of $1.85), with revenue of $3.2 billion also beating expectations by more than 3%.
However, what led to the most recent dip in TAP stock appears to have everything to do with the company’s forward guidance. Molson Coors and its management team revised its full year guidance lower, as macro pressures build, particularly around trade and growing expectations that global retaliation for Trump’s trade war (in combination with less alcohol consumption overall as a structural trend) could drive near-term underperformance.
Is this a dip worth buying?
Despite Molson Coors expecting a revenue decline on the order of 3–4% for the year and penciling in a double-digit earnings decline for this year, it’s also true that this stock is fairly priced for these headwinds.
Trading at around 10 times earnings, TAP stock is cheap on a relative basis (compared to the sector as well as the company’s historical levels). Accordingly, I’m on the fence with respect to whether this is a dip worth buying.
In short, if Molson Coors can beat the lowered expectations for this year’s numbers, plenty of upside is possible from here. On the other hand, if the company’s outlook continues to deteriorate, this could be a value trap worth avoiding. Food for thought.
