Case ID: 196138
Solution ID: 2673
Words: 1482
Price $ 75

Boston Beer Co Inc

Case Solution

BBC’s business model differs a great deal from its peers. Central part of this model is of contract brewing, which transfers production functions to breweries with a careful selection of geographical areas and quality standards. It has higher net sales with a high growth rates as it invests heavily in the branded products. Its intrinsic value through DCF comes out to be $181.599 million with an IPO stock price of around $8.725. However, through comparison with its peers, using growth rates and industry P/E ratios, intrinsic value comes out to be $369.760 million with a stock price of $17.86. By looking at the P/E ratio and market value of the BBC, and P/E ratios of its peers, it can be said that market looks overvalued, and growth rate may not be much promising in the future, and beer industry may become saturated.

Excel Calculations

·         Excerpts from the Boston Beer Company’s Offering Prospectus (cont.)

·         Summary Financial Data (in thousands, except per share, per barrel and employees data)

·         Balance Sheet

·         Income Statement

·         Statement of Cash Flows

·         Financial Ratios 31-Dec-94 to 30-Sep-95

·         Pete's Brewing Company                                            

·         Redhook Ale Brewery                                   

·         BBC

·         WACC & Assumptions

·         WACC Calculation

·         Rf

·         Risk Premium

·         Beta

·         Cost of equity

·         Semi annual Interest Cost

·         Cost of debt

·         Tax Rate

·         Total Equity

·         Debt

·         Total Value

·         WACC

·         DCF Valuation

·         Free Cash Flow

·         Terminal Value

·         Total Cash Flow

·         Enterprise Value

·         Debt

·         Total Value of Equity

·         New Shares

·         Diluted Shares

·         Total number of shares outstanding

·         IPO Stock Price

·         Earnings per share

·         P/E ratio

Questions Covered

1.       What do you think of Boston Beer’s business model relative to the traditional beer companies’ business model, relative to Redhook and Pete’s? Hint: consider their brewing, production, distribution, marketing strategies. How is each firm attempting to achieve its own sustainable comparative advantage in the market place?)

2.       Evaluate Boston Beer’s performance relative to its peers (Compare BBC's ratios to the ratios of its peers in exhibit 4). (Hint: how do differences in operating strategies translate into differences in financial ratios? Are there any downside risks to BBC's contract brewing strategy?)

3.       What is your assessment of the intrinsic value of Boston Beer’s stock at the time of the case? What should be its IPO price?

4.       Do you think the total market value of Redhook, Pete’s and Boston Beer makes sense given the total size and profitability of the beer industry and the craft-brewing segment?