SAM_L.Tamakloe.2015

Important disclosures appear on the last page of this report.
The Henry Fund
Henry B. Tippie School of Management
Liana Tamakloe [liana-tamakloe@uiowa.edu]
Boston Beer Company (SAM) November 6, 2015
Consumer Staples – Food, Beverages & Tobacco Stock Rating Buy
Investment Thesis Target Price $218 - $220
Boston Beer Company is a large craft beer manufacturer that has been
successfully innovative in marketing new flavorful brands of beer to the
market. With a strong industry performance and expected growth in of 13.5%
in 2015, and an annual 5.5% growth till 2020, a well-run company like Boston
Beer is set to reap the advantages of being in this market, this leading us to a
buy conclusion with about 9% upside potential.
Drivers of Thesis
 The craft beer industry grew on average 18.8% in the last five years. With
revenue growth forecast at 13.5%, and with the industry having already
achieved volume growth of 16% by half year 2015, there is more expansion
potential for companies operating in this space.
 Consumer tastes and preference for flavorful beers has driven industry
growth whiles this trend was fueled by the younger population of under
50years. As this age group grows and continues to acquire more global
palates, the demand for new innovative beer flavors will grow.
 Boston beer is a well-run organization with no debt on its balance sheet,
yet generating returns of about 25% on invested capital, a performance
above its peers in the industry. With the potential to take on leverage, SAM
can generate even more returns on capital in the future.
Risks to Thesis
 In Q3 this year, the company experienced declines in sales of its flagship
craft beer brand, Samuel Adams®. If this trend persists, revenue growth will
be hindered.
 The entire beer industry is seeing subtle but persistent competition from
spirits and wines beverages. If this trend accelerates, the growth potential
of the industry will be negatively impacted.
Henry Fund DCF $203.86
Henry Fund DDM $175.84
Rel. Multiple (US stocks) $194.01
Rel. Multiple (Non- US stocks) $224.94
Price Data
Current Price $201.90
52wk Range $195.04 – 325.00
Consensus 1yr Target $244.57
Key Statistics
Market Cap (B) $2.63
Shares Outstanding (M) $13.02
Institutional Ownership 87%
Beta 0.78
Dividend Yield N/A
Est. 5yr Growth 23.61%
Price/Earnings (TTM) 29.00
Price/Earnings (FY1) 23.17
Price/Sales (TTM) 2.92
Price/Book (mrq) 6.04
Profitability
Operating Margin 16.23%
Profit Margin 16.12%
Return on Assets (TTM) 17.30%
Return on Equity (TTM) 24.58%
Earnings Estimates
Year 2012 2013 2014 2015E 2016E 2017E
EPS $4.60 $5.47 $6.96 $8.32 $8.71 $9.09
growth -9.45% 18.91% 27.24% 19.55% 4.71% 4.39%
12 Month Performance Company Description
Boston Beer Company (SAM) is a Massachusetts
based manufacturer of craft beer, flavored malt
beverages (FMBs) and hard ciders under the
brand names Samuel Adams®, Twisted Tea® and
Angry Orchid®. SAM sold 4.1m barrels of beverage
in 2014, qualifying it to be a craft brewer as it did
not exceed the 6m barrels limit. Headquartered in
Boston, the company owns breweries in 5 states
(MA, OH, PA, CA, FL) and has a subsidiary beer
incubator, Alchemy & Science® headquartered in
Burlington, Vermont.
29.0
24.6
14.5
19.4
21.5
13.7
19.1
25.2
11.8
0
10
20
30
40
P/E ROE EV/EBITDA
SAM Industry Sector
-25%
-15%
-5%
5%
15%
25%
N D J F M A M J J A S O
SAM S&P 500
Source: Factset
Source: Yahoo Finance

EXECUTIVE SUMMARY
Boston Beer started operations in the mid-1980s following
a time when breweries and alcohol production had been
outlawed during the Prohibition period. Large brewers
emerged in this time brewing light, less flavorful beers to
be able to meet demands in the market and to cut costs.
Craft beer production emerged from this, where brewers
used richer, more concentrated ingredients for better
quality and better tasting beers. Over the years,
consumers have developed a taste for these more flavorful
options to beers. In the last five years, revenue for the craft
beer industry has grown at an average 18.5% per year
whiles revenues for the entire beer industry altogether has
seen steady declines. At half year of 2015 alone,
production volume growth for the craft beer industry was
at 16%, showing signs for more growth potential.
Boston beer has been very successful in constantly
introducing new flavors of beers into their portfolio. Also,
the company runs a tight ship, generating income and
returns of about 25% on capital invested and for
shareholders, without taking on any debt. If management
alters the capital structure with the inclusion of leverage,
it will be able to generate more value for its shareholders.
Taking all these factors into consideration, we modeled
revenue growth of about 6% and Eps growth of
approximately 20% for 2015. Finally, our calculations lead
us to a target price of $220 on the high end, generating an
upside potential of about 9%, thus informing our buy
recommendation on the stock.
COMPANY DESCRIPTION
SAM has its roots going back to Boston, MA in 1984 when
James Koch (current board chairman) started the company
by experimenting with a family lager recipe out of his
kitchen. The company first made its public debut in 1985,
and was quickly accepted by consumers, earning it an
award as “The Best Beer in America” through a consumer
poll that same year. Over the years, the company grew and
in 1995, listed as a public company on the New York Stock
Exchange.
SAM manufactures beers, FMBs and hard ciders for a
variety of target market consumers under three main
brands; Samuel Adams®, Twisted Tea® and Angry Orchid®
respectively. In addition, the company owns a beer
incubator, Alchemy & Science, which also operates under
4 different brand names: Angel City Brewery®, The
Traveler Beer Co.®, Coney Island® Brewery and the
Concrete Beach Brewery™.
Irrespective of the different products offered to the
market, the company reports its revenues in two
segments, ‘Core Brands’ and ‘Non-core Brands’. The core
brands include all the products under the brand names of
the parent company and its subsidiary listed above. In its
non-core brands, the output is made up of product brewed
in its Cincinnati Brewery (in Ohio) under a contractual
arrangement for a third party. In its 2014 annual report,
SAM indicated that sales of such product is insignificant to
the company’s total revenue. In light of this, our analyses
on SAM focuses entirely on its core brands. Judging from
the graph below, production volume of non-core brands
have on average have historically remained unchanged,
whereas that of core brands have been growing.
Likewise, revenues from the non-core brands stayed the
same whereas that of the core brands have been
increasing at a CAGR of approximately 14% since 2010 as
depicted in the graph below.
-
1,000
2,000
3,000
4,000
5,000
2010 2011 2012 2013 2014
'000Barrels
Production Volume
Core Brands Non-core Brands
-
200,000
400,000
600,000
800,000
1,000,000
2010 2011 2012 2013 2014
Revenues
Core Brands Non-Core Brands
Source: SAM 10-k
Source: SAM 10-k

Because of the relatively insignificant proportion revenues
from non-core brands make of the company’s total
revenues (0.07% of 2014 total revenues), we forecast
volume production of this segment to be 14,000 barrels,
representing a historical average over the last 5 years. We
maintained this output level throughout our forecast
period, only growing revenues by 2% being our outlook on
long-term inflation plus a premium of 0.4%. Since the
company has no stated plans of discontinuing this
contractual arrangement, we opted to keep it at this stable
level going forward.
Core Brands
SAM is classified as an American craft brewer because it is
small, independent and traditional. Being small means the
company producers less than 6 million barrels of beer a
year, is independent if less than 25% of the company is
owned or controlled by an alcoholic beverage industry
member (who is also not a craft brewer) and finally
traditional because a greater volume of its alcohol
beverage production in beers whose flavor is from
traditional or innovative brewing ingredients and their
fermentation.
This classification is distinct because beer production
attracts an excise tax which is in part based on the volume
of production, and classification of the operating entity as
a craft brewer or otherwise. Flavored malt beverages are
not classified as craft beers, but for the purpose of
determining the total volume produced for tax purposes,
this category is included in the calculations.
Excise Taxes on Beer by States
SAM asserts in its 2014 annual report to be the largest craft
brewer in the US. Its products come under the “Better
Beer” category of the beer industry. This segment of beers
is characterized by craft brewers, specialty domestic
brewers, and some imports. By comparison, Better beers
are of higher quality in terms of image, color and taste and
therefore command higher prices as against regular
domestic beers. The Samuel Adams® brand (sometimes
labelled Sam Adams®) is one of the largest brands in this
beer category, and so is the Angry Orchard® the largest
selling hard cider in the US since 2013. Not surprisingly,
making the company the largest craft brewer in the
country.
The company sold 60 varieties of beers under the Samuel
Adams brand, 11 FMBs under the Twisted Tea brand and
10 hard cider selections under the Angry Orchard brand.
Throughout the year, the company offers seasonal beers
which are available only during certain seasons in a year.
For example the Samuel Adams Winter Lager® is available
from November to December whereas the Samuel Adams
Summer Ale® can be purchased in the months of March
Source: Federal Tax Administration

through July only. In addition to these seasonal beers, the
company produces ‘Limited Editions’ of some varieties of
its beers. Examples of these include the Samuel Adams
Utopia® and Infinium®. The difference with between these
two marketing strategies is that while availability of some
beers varies with the seasons of the weather, those of the
limited edition are constrained by the volume of output
made available on the market. The company believes that
consumers have a fast changing taste preference and to
remain competitive, it’s necessary to change the flavor of
its beers, thereby constantly surprising consumers with a
variety of tastes.
Per the SAM estimates, the craft beer industry in the US
grew 19% in 2014 whiles the Better beer category grew by
7%. The entire beer industry remained relatively flat
during this period. With this background and expectations
of craft industry experts estimating the next 5-year CAGR
to be 5.5%, we projected volume output to grow by 4.5%
in the first three years of our horizon, slowing down to
about 1% growth in the final year. With an average price
per barrel of $220.46 in 2014, we forecasted an increase in
prices of 1.6% representing our CPI inflation rate over the
long term. Together, the volume and price forecasts yield
a revenue forecast growing at 6% in the first three years,
then slowing down to 3.60% in the terminal year of our
forecasts.
Company Analysis
Location - SAM owns breweries in 5 states in the US.
Besides the Boston Brewery in MA where the company is
headquartered, it has operations in Cincinnati OH,
Breinigsville PA, Los Angeles CA and Miami FL. Peculiar to
its manufacturing locations is that the Ohio brewery is
where production of its ‘non-core’ brands takes place as
previously indicated. In addition it is from this location that
most of the company’s specialty and lower volume
products are produced. The Boston plant was the first
production site of the company and is now mainly focused
on ideating, test brewing and developing new products for
the organization’s future use. The Pennsylvania brewery is
the largest and together with the Cincinnati brewery
produce most of the beer volume. In 2014, 95% of beer
shipment were from company owned breweries. The
company is into a brewing services agreement with 3 other
companies from where the remaining volume are
produced. These are City Brewing Company LLC in Latrobe
PA and La Crosse WI, Pleasant Valley Wine Company in
Hammodsport NY, and Shmaltz Brewing Company LLC in
Clifton Park also in NY.
Production - For its production, SAM sources its main
ingredients of hops, yeast and apples from a variety of
sources. For its malt, it is sourced from a single supplier
with whom there currently exists a multi-year agreement
to supply to the company. Even though SAM expresses
confidence in this relationship with the supplier, we are
very skeptical of the prudence in having all malt supplied
from one single source, thus making us a little nervous
about the future. For its hops, it has contract
arrangements with seven hops dealers for hops produced
both in the US and in other international locations. It
maintains a two-year inventory of hops to reduce the risk
of shortage.
Marketing & Distribution – Distribution is done through a
network of 350 independent distributors in the US and a
number foreign wholesalers, importers and other agents
from global markets. Its product is marketed mainly in the
US but also in Canada, Europe, Australia, New Zealand,
Israel, Mexico, Central & South America, the Caribbean
and the Pacific Rim. There is no indication exactly what
percentage of output is sent to these markets but our
understanding of the company so far leads us to believe it
may be in the region of 10%. In 2014, the single largest
distributor accounted for 6% of net revenues, with the top
three distributors accounting for 12% of net revenues
collectively. The company’s marketing activities is through
a sales force 410 who are constantly in the marketing
engaging with distributors and retailers about new brands
and flavors, and ensuring effective intermediation with the
company. Besides the sales force, marketing is also carried
through the traditional media outlets like television, radio,
print and billboard and other new ones like digital devices
and social media. In this regard, all its different brands
each have a dedicated website to serve the needs of its
market. From knowing what goes into the product, to
finding information on availability in specific locations, and
again to what pairings of food will make a great meal,
these lively websites offer a plethora of information about
the brands. With the modern age of social media, the
websites offer an opportunity to share photos, and
connect with people who share the same interests.

Sample Web Page of the Samuel Adams Brand
Packaging & Competition - In packaging, the beers are put
in kegs if being sold to on-premise retailers, such as
restaurants and bars, and in bottles and cans when sold to
off-premise retailers like grocery, convenience or liquor
stores. Additionally, the company sometimes reintroduces
some flavors of brands which have previously been taken
off the market, including some of these in its variety pack.
The company derives competitive advantage, especially
among imported brands of better beers as it does not incur
import charges and serves customers with superior fresh
products. We believe this will continue to be an advantage
as the introduction of the Fresher Beer Program, has
reduced distributors’ inventory by about two weeks. This
program entails a reorganization of the delivery process
around forecasting, planning and general co-operation
with distributors to reduce inventory volumes and ensure
more fresh products to the final consumer. Against
regional breweries, the company has a long history of
awards which certify the quality of its products. It also
alludes to availability of resources and cost savings from its
promotion and distribution functions. With the recent
acquisition of 100% of the joint venture Molson Coors had
with SABMiller in producing MillerCoors, I believe a
competitor like Molson Coors stands to gain access to
more resources, thus destroying the advantage SAM
projects.
RECENT DEVELOPMENTS
As a mid-sized craft beer manufacturer, does not report
many corporate changes of its business model. Being a
fairly young company too helps to explain some of the
reasons why there is not much to report in terms of
corporate developments. Our following discussion focuses
on the role of the subsidiary brewery company Alchemy &
Science, and the just released Q3 earnings report.
Establishment of Subsidiary
The craft beer industry has witnessed growth in the last
few years and to be able to remain relevant and take
advantage of some this growth, SAM established its beer
incubator Alchemy & Science® (A&S) in 2011, with the
mandate to find new opportunities in the industry. As
explained by SAM in its 2014 10-K, these opportunities
could come in the form of geographic expansion, or may
be stylistic, in that it may lead to a change in existing
process. For this reason, A&S made purchases of assets of
breweries in both 2012 and 2013, from a Los Angeles
based brewer and a New York based brewer respectively.
The output from A&S trades under a separate brand name
from those of the parent company, and in limited markets.
The company has been experimenting with ‘shandy-style’
beers and other fruit flavored variations looking to
understand trends and changes in taste preference in its
consumer market base.
With expectations of continued growth in craft beer
demand, many of the larger players have acquired local
craft breweries to establish themselves to partake in the
expected growth. A&S therefore serves as an effective arm
of SAM as it engages in asset acquisitions among others,
giving SAM a footing in the niche markets as these gains
materialize. We perceive this arrangement to be highly
beneficial, as it frees up responsibility for the parent
company SAM to concentrate on satisfying and growing
the current customer base, and leaving the hunt for
growth opportunities to A&S.
Q3 Earnings Released
At the end of the month last October, the company
released its Q3 earnings results and even though the
company performed better than analyst estimates, the
stock took a 9% hit following management’s warning on
Source: SAM Website

reducing volumes associated with its Sam Adams brands.
The stock has since rebounded on other news of M&A
activity affecting other small craft brewers, even though
the price gains do not bring it close to pre-earnings release
levels.
For revenues in Q3, SAM earned $293.1m representing a
growth of 9% over that in 2014, and beating estimates by
$5.07m. Increased revenues were attributed to increases
in shipment volume (mostly from increased volumes from
the Twisted Tea®, Angry Orchard® and some brands
manufactured by A&S, Traveler® and Coney Island ®), and
increased revenue per barrel impacted by product mix and
some increases in prices. Consequently, gross margins
came in at 53.6% compared to 53% last year. In addition to
increased revenues, lower ingredient costs worked to
enhance margins for the quarter.
Other costs such as advertising and general &
administrative came in higher than it was in 2014. These
increases were attributed to salary expenses, increased
promotional spending increased freight to distributors due
to higher volumes. All put together, net income for the
quarter was $2.85 per share, showing a $0.6 increase over
the same period last year, and beating estimates by $0.16.
For FY2015, the company expects an EPS of $7.40,
compared to $6.94 in 2014 and a little lower than the
initial guidance of between $7.10 and $7.50 previously
communicated. Compared to SAM’s forecasts, our
estimates for EPS in 2015 is $8.32 whereas average
analysts comes in at $7.23. Our forecasts takes into
account SAM’s guidance on depletion growth rate
estimated to be between 3% and 6%, leading us to forecast
volume growth at 4.5% in the first three years of our
horizon. Also, taking cognizant of some other factors such
as estimated expenditures on advertising and promotions
and an effective tax rate of 37%, our forecast more closely
represents what management has guided on major items
in its financials. We believe the $7.40 estimate of EPS from
management is lower than forecast to include a surprise
element that will translate into SAM beating analyst
projections at announcement of its Q4 and FY15 results.
INDUSTRY TRENDS
The Craft Beer Industry is a sub-category in the beer
industry which comes under the broader Food, Beverage
& Tobacco Industry in the Consumer Staples Sector of the
S&P 500. Our discussion of industry trends will take two
main forms: (a) the decline in popularity of the overall beer
industry vis-à-vis the growth in popularity of craft beers,
and (b) changing consumer tastes and competition from
other alcoholic beverages
Declining Beer sales; growing popularity of
Craft Beers
Beer makes up the largest component of the alcoholic
beverage industry (47.8%), however in recent years, the
volume of beer sold and consumed has been reducing
gradually.
Source: Distilled Spirits Council, via Market Realist
Source: Brewers Association, via Market Realist.com
Wine
17%
Distilled
Spirits
35%
Beer
48%
ALCOHOLIC BEVERAGE INDUSTRY
CLASSIFICATION

In recent years however, market share for beer has been
decreasing gradually, to the benefit of increasing market
share for distilled spirits and wines. The reason behind
reduction in market share for beer is due to changing
consumer preference (we shall explore more on this in the
next section) and a shift to consuming healthier options of
beverages such as tea and bottled water.
MARKET SHARE TREND OF ALCOHOLIC BEVERAGES
Interestingly however, within the beer category, craft
beers have witnessed impressive growth. In 2013, volume
sales of craft beers increased 15% and 18% by dollar value.
For 2014, volume sales were 22.2m barrels, an increase of
18% for that year. As at the end of the first half of 2015,
craft beer production was at 12.2m barrels representing
15% increase over the same period in 2014, and an
increase in breweries by 700 since the middle of 2014.
According to the Brewers Association, the total brewery
count as at writing of this report has surpassed 4,000.
Changing Consumer Preference
As earlier mentioned, one of the underlying factors in the
decline in beer sales is shifting tastes and preferences of
consumers. These changes in preference can be attributed
to increased awareness of health risks associated with
alcohol consumption, and more importantly changes in
the demographic composition of the consuming market.
Beers sales to the population group aged 50 years and
above constitute 30% of total sales in the industry.
Implying that the remaining consumption is by those
under 50 years but above 21. This population has had a
growing preference for light and flavorful beers. There are
also signs of shifting preference for other alcoholic
products like wine and distilled spirits among this
demographic group. These have been as a result of
innovative product releases in these categories, as well as
competitive price points, drawing away market share from
beers.
From our understanding of the industry and observation
of current events in the market place, we are of the
opinion that we will continue to see consumers develop
even more global palates thereby leading to higher
demand for more in-depth flavorful alcoholic beverages.
In light of this, we expect to see continued growth for craft
beers as a result.
MARKETS AND COMPETITION
The beer industry has a unique and intricate classification
which goes a long way to segment manufacturers into
different groups. Broadly, there are two main classification
of the beer industry, craft brewers and non-craft brewers.
As previously described, craft brewers are described as
small, independent and traditional. All other
characteristics that do not fit this description qualifies a
brewer as non-craft; that is to say they are large, not
independent and may not be brewing traditional beers.
Source: Distilled Spirits Council, via Market Realist.com
Source: Brewers Association, via Market Realist.com

Further sub-classification of the beer industry is as shown
in the figure below.
US Beer Market Classification
As described earlier, craft beers are usually richer in
quality, and command a higher price than non-craft beers.
It is believed that on average, craft brewers use 3x – 7x
more malt in their brewery activities leading to richer
flavors. For farmers, this has been an important market
source.
Microbreweries produce less than 15,000 barrels of beer a
year and sell at least 75% of that output to off-site
consumers. Brewpubs produce and sell at least 25% or
more of output onsite to consumers. These are usually
restaurants and other locations serving beer directly out of
the brewery’s storage tank. A contract brewery is a
business who hires another to manufacture beer on its
behalf. Interestingly, the manufacturing brewery is also
described as a contract brewery. The hiring firm may be an
ordinary business or another brewery that needs more
capacity for manufacture of its products. The producing
brewery handles production and packaging, while the
hiring firm/brewery handles marketing and distribution of
the product. A regional craft brewery like SAM produces
more than15,000 barrels of beer per annum, but less than
6m barrels.
Packaging of craft beer has historically been in bottles. In
recent times, cans have been introduced as they are
lighter and make for easy and cost efficient transportation,
are able to block light thereby keeping the beer fresh and
are more sustainable and they recycle more easily than
bottles.
In 1919, the 18th
Amendment of the US Constitution
declared it illegal to manufacture, distribute and sell
alcohol, a period known as the Prohibition Era. This was
due to a number of factors including the belief that alcohol
contributed to the problems of society. In 1933, the 21st
Amendment of the constitution repealed the earlier
provision, but it was about the onset of World War II and
so production of beer did not return to pre-prohibition
levels quickly. To control the industry therefore, states
enacted laws that required three main players in the beer
production chain; manufacturers, wholesalers/
distributers and retailers. This was to effect more control
over the industry for effective taxation and production
volumes through the issue of licenses to all three industry
participants. Taxation is done both on a federal and state
level where manufacturers pay federal & state excise
taxes, and distributors and retailers pay sales. The map
below shows the distribution of taxes by state.
State Beer Excise Tax Rates as at Jan. 2015 ($/gal.)
It is estimated that about $48.5bn was collected as tax
revenue from breweries, and this amount represents
approximately 40% of beer retail price. Taxes were
introduced initially to control consumption of alcohol with
the belief that higher prices will reduce volume demanded
by consumers. Following from this, we see brewery
establishments concentrated in areas where state taxes
are lower. Also influencing location decisions are
population density of the area, availability of high quality
water, and areas with warmer temperatures which aid and
Source: Technavio.com
Source: The Tax Foundation

facilitate higher crop yields. Altogether, we see
concentration of establishments on the west coast, the
Great Lakes region, the Mid Atlantic and in Colorado and
Texas.
Brewery Locations in the US
For organization cost structures, not surprising is the fact
that purchases of raw materials make up a majority of
costs, approximately 57%. For large manufacturers
therefore, global prices of grains and other agricultural
produce will have a huge impact on costs and net earnings.
Craft Industry Costs Vs Consumer Staples Sector Costs
To remain competitive, industry players devise incentive
programs for distributors to carry more of their products
in their portfolio. Companies also fight for shelf space in
retail locations to ensure visibility. And to compete for
consumers’ attention, beer manufacturers have
introduced seasonal and limited edition drinks to their
portfolio of products. In 2013, seasonal and other non-
customary craft beers contributed about 24% of the
industry’s growth. SAM has been very successful in
infusing a variety of flavors in its portfolio and has been a
point of reference in many publications.
Peer Comparisons
The beverage industry is filled with a good selection of
companies listed on formal exchanges as investment
opportunities. In the entire universe of alcoholic beverage
manufacturers, popular companies like Heineken and
SABMiller, who are major players in the US market trade
on foreign exchanges and therefore do not represent
accurate comparison to SAM. Of the 5 companies
shortlisted, only Craft Brew Alliance has a product
portfolio made of mostly craft beers and can thus be
compared sufficiently. All the other comparable
companies have a mixed portfolio of wines, beers and
spirits.
In the preceding table SAM is the second largest company
by market cap, and generates the most returns to
shareholders and the most returns to invested capital.
Meanwhile, its net margins of 10% are comparable to its
peers even though they have slightly higher margins. With
respect to operating margins, it actually performs better
that Molson Coors which is a far larger company with a
bigger product portfolio. The larger firms like Diageo and
Anheuser-Busch have larger operating margins resulting
from cost savings due to large volumes. Some of these
firms also have very dedicated distribution partners and
can leverage on their size to bid against the smaller
companies on several levels.
Source: IBIS World, 2015
Debt/Total Assets = %
Source: Factset
Company Ticker
Op.
Margin
Net
Margin
Debt/
Assets ROIC ROE
Craft Brew Alliance BREW 2.85 1.54 8.33 2.45 2.72
Boston Beer Company SAM 16.43 10.05 0.10 24.55 24.58
Molson Coors Brewing Company TAP 12.06 12.38 22.77 4.66 6.22
Constellation Brands, Inc. STZ 25.90 13.92 48.42 6.92 15.61
Diageo plc DEO 28.05 22.02 39.14 14.91 31.34
Anheuser-Busch Inbev Sa BUD 29.90 19.58 35.28 9.95 18.37

Also, SAM has virtually no debt and yet generates more
returns to equity holders, whereas all the other companies
hold some level of debt in their capital structure. This
makes the company more attractive, especially as an
acquisition target.
On the valuation metrics, SAM appears fairly richly valued,
second only to Craft Brew when looking at P/E. Along the
other variables, the stock trades comparatively to its peers
(the small and medium cap stocks) and a little above the
larger cap stocks. On the other metrics, it trades
comparable to the other stocks, with investors willing to
pay a little bit more for the company’s cash-flows, as
depicted by its slightly higher P/CF multiple.
ECONOMIC OUTLOOK
GDP & Disposable Income
Craft beers is generally priced higher than regular beers.
People’s expenditure on ‘pricey’ goods is influenced in part
by economic cycles and disposable income. The more
economic activity and thus GDP the country generates, the
more disposable income consumers will have given that
savings habits remain unchanged. This will therefore lead
to increased demand for a good like craft beer. The
opposite is also true. Given this condition however, we
believe the elasticity of demand for craft beers is not
extremely sensitive to disposable incomes and GDP unless
in times of serious economic recessions. Given that
economic performance of the US in recent years, we do
not foresee any serious downturn in the markets. In the
long run, we predict GDP to rise on average 3.05%. Below
are graphs of recent GDP and disposable income statistics
for the US.
US 5-year GDP Growth Rate
US 5-year Disposable Personal Income
Unemployment
Closely related to GDP and disposable income is
unemployment. When more people have jobs, they have
more income and their share of disposable income will
increase. This will then lead to increased spending on non-
essential items like craft beer. On the other hand, when
people do not have jobs, they will spend less on alcohol. It
is worth noting here though that people tend to grow
almost addicted to alcohol and so unless they have been
out of work for very long periods, their employment
situation bears little on their alcohol expenditure. We do
not anticipate any rapid deterioration in the labor markets
and therefore predict unemployment in the long run to
stay at about 5.31%.
The US job market has been improving steadily and is
currently at very low levels. The graph below depicts the
gradual decline in unemployment over the last 5 years.
Source: Factset
Company MKT Cap
EV/
EBITDA P/E P/S P/CF
Craft Brew Alliance 161 18.73 83.38 1.28 25.74
Boston Beer Company 2,778 20.21 44.21 4.42 28.24
Molson Coors Brewing Company 17,424 20.33 27.00 3.34 10.90
Constellation Brands, Inc. 27,193 16.82 30.70 4.27 23.89
Diageo plc 72,132 16.95 19.43 4.30 18.21
Anheuser-Busch Inbev Sa 201,600 13.25 20.22 4.04 13.43
Source: Trading Economics
Source: Trading Economics

5-year Unemployment of the US
Corporate & State Beer Taxes
As discussed earlier, specific tax regimes exist for the beer
industry on both a federal and state levels. In 2014, taxes
generated revenues of about $48.5bn representing 40% of
beer prices. We do not foresee rapid increases in the tax
on beer production and sale. However, we may see some
slight increases in some states over time.
Commodity Prices
As discussed earlier, raw material purchases constitute a
huge chunk of the cost structure for breweries.
Commodity prices on global markets have remained soft
from much of last year till date. With slowing growth in a
lot of international markets, especially China, we do not
expect to see strengthening in commodity prices anytime
soon. In addition to global input prices, government
subsidies and the weather pattern can affect input costs
for beer manufacturers. Since these elements are most
unpredictable, we do not have specific opinions of what
changes will take place in the near future, but we do not
envision any sudden government activity, or rapid
increases in commodity prices to affect raw materials
costs.
INVESTMENT POSITIVES
 The craft beer industry has seen strong growth in
product volume and value especially in the last couple
of years, where volume growth was 15% in 2013 and
18% in 2014. Additionally as at half year in 2015,
volume growth was 16%, indicating there is more
room for growth in the near future.
 While the overall beer industry is experiencing gradual
declines in market share, craft beer has been resilient
and rather grown its share of the market, spurred on
by changing taste and preference for flavorful beers.
 SAM is one of the largest craft producers in the
industry and well poised to take advantage of the
growth opportunities in the market. The company can
take on debt as it currently has none to expand its
operations and can generate sufficient cash to pay
back its debt obligations. It returned positive ROIC and
ROE to shareholders at 25%, much higher than its
peers with large debt balances on their books.
INVESTMENT NEGATIVES
 Forecast declines in the sales of its flagship beer brand,
Samuel Adams by management in their Q3 earnings
release. If this situation should persist longer, the
company may not enjoy in the rise in demand for craft
beers as it will be locked out by competition.
 With increased competition form wines and spirits, if
the declines in beer sales extends to craft beers, the
company will take a big hit.
VALUATION
Revenues
Our revenue forecast was broken into the company’s two
reporting segments: Core and Non-core Brands.
Volume forecast for the core brands was kept constant at
the average historical level over the previous 5 years, while
price increased by 2% each year over our forecast horizon.
For core brands, volume increases was at 4.5% in the first
three years and then reduced to grow at 2.5% from then
on, reducing by 5 basis points each year following that until
terminal year growth was only 1%. Price increases for this
segment was 1.6% each year, reflecting our long term view
of inflation at the time. Taken together, revenues growth
was 6% in each of the first three years, reducing gradually
to 3% by the terminal year.
Costs, etc.
COGS – Our cost of sales was 43% of revenue for each year
of our forecast horizon, being the historical average cost
of sales to revenue.

Selling and promotional – We forecast selling cost initially
starting at 27% of revenues, going off of the historical
trend, more biased to the ratio of promotional spend in
2014. Over the forecast, this cost reduces by an average 7
basis points showing savings to be gained as operational
scale expands.
General & Administrative Expenses – This portion of our
costs for the first year was in the same ratio of general &
administrative costs to revenue in 2014 which was 7.31%.
As we progressed in our forecast, this ratio reduced by
0.06% on average throughout.
Margins – Our operating and profit margins forecasts were
relatively unchanged over the period, being 18.2% and
11.45% on average respectively.
EPS – our EPS for 2015 was $8.32, increasing steadily to
$10.02 over the forecast years. Management EPS forecast
for the year is $7.40 whereas analyst estimates come in at
$7.20. We closely modelled our 2015 earnings taking into
consideration several of management’s guidance on
expected earnings growth of expenditure and investment
patterns. We believe the disparity in EPS forecasts for 2015
can be explained by one time arbitrary events which we
did not model for the company.
Capex – Our capital expenditure in terms of inventory
was 6% each of forecast revenues reflecting the historical
average ratio of this asset item to revenue, whiles capital
investments in PPE was on average $80m arrived at after
getting a sense of management’s expectations on plant
and infrastructure expenditure each year.
WACC – Our wacc for the company came in 6.87%. We
used a risk free rate of 3.09%, being the 30-year treasury
yield, an equity market premium of 4.85% being the 87-
year average stock returns in excess of the 30-year
government treasury and a bond spread of 1.16% being
the average for the beverage industry. At a tax rate of 35%
and carrying almost no debt on its balance sheet (0.02%),
the wacc was almost entirely made up of the cost of equity
which was also 6.87%.
Valuation
Our valuation resulted in the following values for our stock
price as at year end 2015:
DCF – $203.86
DDM - $ 175.84
Relative Valuation (US traded companies) - $194.01
Relative Valuation (non-US traded companies) - $224.94
Our target price is set between $218 - $220 relying mostly
on our DCF pricing and relative valuation prices. The
company has historically not paid dividends and so the
dividends payout used in estimating the price for the DDM
was an average of payout ratios from its peer group. At a
payout of 45%, this may not be very reflective of the
payout policy the organization would have been running
had it engaged in a paying dividends.
KEYS TO MONITOR
Going forward, three things that will be influential in our
investment thesis are:
a. The trend in preference for craft beers over
regular non-craft beer, and the level of
competition from other alcoholic beverages like
wines and spirits.
b. If management is able to reverse the decline in
volumes of the Samuel Adams® brand of beers as
this beer carries the main brand value of the
company and is central to output.
c. Government regulation and other policies in
terms of subsidies, taxes or licenses which may
impose severe restrictions on the industry’s
potential.
REFERENCES
1. Boston Beer Company Websites and 10-K filings
2. Factset
3. Seeking Alpha
http://seekingalpha.com/article/3628926-
boston-beers-sam-ceo-martin-roper-on-q3-2015-
results-earnings-call-transcript?part=single
4. Brewers’ Association
https://www.brewersassociation.org/statistics/cr
aft-brewer-defined/
5. Federal Tax Administration
http://www.taxadmin.org/fta/rate/liquor.pdf
6. The Beer Institute

http://www.beerinstitute.org/news-media/press-
releases/u.s.-beer-industry-brews-253-billion-in-
economic-activity-and-serves-u
7. Huffington Post
http://www.huffingtonpost.com/entry/ab-inbev-
sabmiller-merger_561d0d89e4b0c5a1ce607a2f
8. Fortune Website
http://fortune.com/2015/08/05/beer-industry-
craft-beer/
9. Market Realist
http://marketrealist.com/2015/03/alcoholic-
beverages-key-category-beverage-industry/
10. Technavio.com
http://www.technavio.com/report/beer-market-
in-the-us-size-and-growth-forecast-2015-2019
11. The Tax Foundation
http://taxfoundation.org/blog/how-high-are-
beer-taxes-your-state
12. Wikipedia
https://en.wikipedia.org/wiki/Beer_in_the_Unite
d_States
13. Beverage Industry.com
http://www.bevindustry.com/articles/87230-
craft-brewers-sales-growth-continues
IMPORTANT DISCLAIMER
Henry Fund reports are created by student enrolled in the
Applied Securities Management (Henry Fund) program at
the University of Iowa’s Tippie School of Management.
These reports are intended to provide potential employers
and other interested parties an example of the analytical
skills, investment knowledge, and communication abilities
of Henry Fund students. Henry Fund analysts are not
registered investment advisors, brokers or officially
licensed financial professionals. The investment opinion
contained in this report does not represent an offer or
solicitation to buy or sell any of the aforementioned
securities. Unless otherwise noted, facts and figures
included in this report are from publicly available sources.
This report is not a complete compilation of data, and its
accuracy is not guaranteed. From time to time, the
University of Iowa, its faculty, staff, students, or the Henry
Fund may hold a financial interest in the companies
mentioned in this report.

The Boston Beer Company
Key Assumptions of Valuation Model
Ticker Symbol SAM
Current Share Price $201.90
Current Model Date 11/6/2015
Fiscal Year End Dec. 31
Pre-Tax Cost of Debt 4.25%
Beta 0.78
Risk-Free Rate - 30 Year Treasury 3.09%
Equity Risk Premium 4.85%
CV Growth 2.62%
Current Dividend Yield 0.00%
Marginal Tax Rate 35.00%
Effective Tax Rate 37.00%
CPI Inflation Rate 1.60%
Depletion Growth Rate 4.50%
Non-core Brands Price Growth 2.00%
10-year Treasury Rate 2.34%
Cost of Equity 6.87%
WACC 6.87%
Shares outstanding 13,016

Revenue Decomposition
Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E
Revenue - Core Brands 579,133 738,247 902,343 958,035 1,017,165 1,079,945 1,119,168 1,154,131 1,184,323
Revenue - Non-Core Brands 1,089 806 664 949 967 987 1,007 1,027 1,047
Net Revenue 580,222 739,053 903,007 958,984 1,018,133 1,080,932 1,120,175 1,155,158 1,185,370
Growth 13% 27% 22% 6% 6% 6% 4% 3% 3%
Volume (in 1000 barrels)
Core Brands 2,727 3,403 4,093 4,277 4,470 4,671 4,764 4,836 4,884
10% 25% 20% 4% 5% 4% 2% 1% 1%
Non-core Brands 19 13 10 14 14 14 14 14 14
46% -32% -23% 40% 0% 0% 0% 0% 0%
Total Volume 2746 3416 4103 4291 4484 4685 4778 4850 4898
11% 24% 20% 5% 4% 4% 2% 1% 1%
Price ($ per barrel)
Core Brands 212.37 216.94 220.46 223.99 227.57 231.21 234.91 238.67 242.49
2.47% 2.15% 1.62% 1.60% 1.60% 1.60% 1.60% 1.60% 1.60%
Non-Core Brands 57.32 62.01 66.42 67.75 69.11 70.49 71.90 73.34 74.80
-13% 8% 7% 2% 2% 2% 2% 2% 2%

Income Statement
Fiscal Years Ending Dec. 31 2012 1Q13 2Q13 3Q13 4Q13 2013 1Q14 2Q14 3Q14 4Q14 2014 1Q15 2Q15 3Q15 4Q15E 2015E 2016E 2017E 2018E 2019E 2020E
Net revenue 580,222 135,932 181,332 216,414 205,375 739,053 183,845 231,611 269,734 217,817 903,007 199,503 252,204 293,094 214,183 958,984 1,018,133 1,080,932 1,120,175 1,155,158 1,185,370
Cost of goods sold 244,804 68,149 84,200 101,035 100,747 328,228 93,326 108,515 126,738 109,417 402,858 99,888 115,979 136,084 56,687 408,638 433,842 460,601 477,324 492,230 505,104
Depreciation 20,208 25,903 35,138 45,788 49,294 53,578 56,749 58,339 59,738
Gross profit 315,210 67,783 97,132 115,379 104,628 384,922 90,519 123,096 142,996 108,400 465,011 99,615 136,225 157,010 157,496 504,558 534,997 566,752 586,102 604,588 620,528
Operating expenses:
Advertising, promotional & selling expenses 169,306 43,449 50,178 56,096 58,207 207,930 61,257 65,922 65,024 58,493 250,696 60,247 71,370 78,205 49,104 258,926 274,387 291,095 301,327 310,506 318,391
General & administrative expenses 50,171 14,648 14,906 15,744 17,034 62,332 15,871 16,681 15,748 17,671 65,971 17,230 18,036 17,707 16,841 69,814 73,815 78,368 80,877 83,402 85,228
Impairment of long-lived assets 149 - - 1,300 267 1,567 - - 1,577 200 1,777 - - 218 672 890 890 890 890 890 890
Settlement proceeds - - - - - - - - - - - - - - - - - - - - -
Total operating expenses 219,626 58,097 65,084 73,140 75,508 271,829 77,128 82,603 82,349 76,364 318,444 77,477 89,406 96,130 66,617 329,630 349,091 370,352 383,094 394,799 404,509
Operating income 95,584 9,686 32,048 42,239 29,120 113,093 13,391 40,493 60,647 32,036 146,567 22,138 46,819 60,880 90,880 174,928 185,906 196,399 203,009 209,789 216,019
Interest income (expense) 31 (2) (6) 30 9 31 (4) (5) 31 (1) 21 (3) 11 - 13 21 21 21 21 21 21
Other income (expense), net (98) (122) (220) (57) (184) (583) (136) 201 (371) (688) (994) (325) 54 (527) 538 (260) (260) (260) (260) (260) (260)
Total other income (expense), net (67) (124) (226) (27) (175) (552) (140) 196 (340) (689) (973) (328) 65 (527) 551 (239) (239) (239) (239) (239) (239)
Income (loss) before provision for income taxes 95,517 9,562 31,822 42,212 28,945 112,541 13,251 40,689 60,307 31,347 145,594 21,810 46,884 60,353 91,431 174,689 185,667 196,160 202,770 209,550 215,780
Provision (benefit) for income taxes 36,050 2,650 12,107 16,526 10,866 42,149 4,936 15,261 22,381 12,273 54,851 8,067 16,952 21,729 17,887 64,635 68,697 72,579 75,025 77,534 79,839
Net income (loss) 59,467 6,912 19,715 25,686 18,079 70,392 8,315 25,428 37,926 19,074 90,743 13,743 29,932 38,624 73,544 110,054 116,970 123,581 127,745 132,017 135,941
Weighted average shares outstanding - basic 12,928 12,800 12,886 12,843 12,914 12,869 12,992 13,040 13,033 13,064 13,038 13,214 13,363 13,182 13,182 13,227 13,426 13,588 13,761 13,646 13,504
Net income per share - basic 4.60 0.54 1.53 2.00 1.40 5.47 0.64 1.95 2.91 1.46 6.96 1.04 2.24 2.93 5.58 8.32 8.71 9.09 9.28 9.67 10.07
Dividends declared per common share 3.74 3.92 4.09 4.18 4.35 4.53
Total Dividends Paid 0 0 0 0 0 0 0 0 0 0 0 49,524 52,637 55,611 57,485 59,408 61,174
Div. Payout Ratio 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 45% 45% 45% 45% 45% 45%

Balance Sheet
Current Assets:
Cash & cash equivalents 74,463 49,524 76,402 110,480 130,687 153,316 190,440 214,987 240,908
Accounts receivable, net 31,479 42,001 36,860 43,154 45,816 48,642 50,408 51,982 53,342
Inventories 44,361 56,397 51,307 57,539 61,088 64,856 67,210 69,309 71,122
Prepaid expenses & other assets 6,628 10,644 12,887 12,817 13,608 14,447 14,972 15,439 15,843
Income taxes receivable 1,645 1,038 21,321 - - - - - -
Deferred income taxes 5,411 5,712 8,685 1,770 1,881 1,987 2,054 2,123 2,186
Total current assets 162,342 164,278 207,462 225,760 253,079 283,248 325,084 353,841 383,401
Property, plant & equipment, gross 310,682 409,689 553,979 628,979 713,979 793,979 863,979 933,979 1,003,979
Less accumulated depreciation 120,734 143,131 172,410 218,198 267,492 321,070 377,819 436,159 495,897
Property, plant & equipment, net 189,948 266,558 381,569 410,781 446,487 472,909 486,160 497,820 508,082
Other assets 4,656 9,556 12,447 12,646 12,848 13,054 13,263 13,475 13,691
Goodwill 2,538 3,683 3,683 3,683 3,683 3,683 3,683 3,683 3,683
TOTAL ASSETS 359,484 444,075 605,161 652,870 716,098 772,893 828,189 868,819 908,857
Current Liabilities:
Accounts payable 28,303 34,424 35,576 37,096 39,384 41,813 43,331 44,685 45,853
Current portion of debt & capital lease obligations 62 53 55 50 45 41 37 33 30
Accrued expenses & other current liabilities 60,529 69,900 74,539 79,116 83,996 89,177 92,414 95,301 97,793
Total current liabilities 88,894 104,377 110,170 116,262 123,425 131,031 135,783 140,018 143,677
Deferred income taxes 20,463 32,394 50,717 42,349 45,010 47,554 49,156 50,800 52,310
Debt & capital lease obligations, less current portion 566 584 528 478 433 393 356 322 292
Other liabilities 4,470 4,635 7,606 7,728 7,851 7,977 8,105 8,234 8,366
Total liabilities 114,393 141,990 169,021 166,817 176,720 186,954 193,399 199,375 204,645
Common Equity 157,433 173,153 225,040 243,631 262,223 280,814 299,406 301,451 301,451
Accumulated other comprehensive income (loss), net of tax (883) (417) (1,133) (741) (741) (741) (741) (741) (741)
Retained earnings (accumulated deficit) 88,541 129,349 212,233 272,763 337,096 405,066 475,326 547,935 622,703
Common stock held in treasury, at cost - - - (29,600) (59,200) (99,200) (139,200) (179,200) (219,200)
Total stockholders' equity (deficit) 245,091 302,085 436,140 486,053 539,378 585,939 634,790 669,444 704,212
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 359,484 444,075 605,161 652,870 716,098 772,893 828,189 868,819 908,857

Cash Flow Statement
Cash flows from Operations: Cash flows from Operations:
Net income (loss) 59,467 70,392 90,743 Net Income 110,054 116,970 123,581 127,745 132,017 135,941
Adjustments to net cash from operations
Depreciation & amortization 20,208 25,903 35,138 Adjustments to net cash from operations
Impairment of long-lived assets 149 1,567 1,777 Depreciation & Amortization 45,788 49,294 53,578 56,749 58,339 59,738
Loss (gain) on disposal of property, plant & equipment 54 462 434 Gross Cash from Operations 155,843 166,264 177,159 184,494 190,356 195,680
Bad debt expense (recovery) 59 19 (16)
Stock-based compensation expense 6,528 7,318 6,857
Excess tax benefit from stock-based compensation arrangements (7,894) (5,282) (17,353)
Deferred income taxes 2,066 11,630 15,350 Changes in Working Capital Accounts:
Changes in Operating assets & liabilities: Accounts receivable, net (6,294) (2,662) (2,826) (1,766) (1,574) (1,360)
Accounts receivable (8,305) (10,542) 5,157 Inventories (6,232) (3,549) (3,768) (2,355) (2,099) (1,813)
Inventories (10,289) (12,036) 5,090 Prepaid expenses & other assets 70 (791) (839) (525) (468) (404)
Prepaid expenses, income tax receivable & other assets 6,123 (7,616) (9,447) Income taxes receivable 21,321 - - - - -
Accounts payable 8,002 3,173 884 Accounts payable 1,520 2,288 2,429 1,518 1,353 1,169
Accrued expenses & other current liabilities 19,491 14,633 4,578 Accrued expenses & other current liabilities 4,577 4,880 5,181 3,238 2,886 2,493
Other liabilities (329) 361 2,019 Other liabilities 122 124 126 128 130 132
Net cash flows from operating activities 95,330 99,982 141,211 15,083 290 303 238 228 217
Cashflows from Operations 170,926 166,554 177,462 184,732 190,584 195,897
Cash flows from investing activities:
Purchases of property, plant & equipment (66,010) (100,655) (151,784) Cash flows from investing activities:
Cash paid for acquisition of brewery assets & other intangible assets (1,726) (2,753) (100) Property, plant & equipment, gross (75,000) (85,000) (80,000) (70,000) (70,000) (70,000)
Change in restricted cash (628) 62 53 Other assets (199) (202) (206) (209) (212) (216)
Proceeds from disposal of property, plant & equipment 41 18 - Deferred income tax assets 6,915 (111) (106) (67) (69) (63)
Net cash flows from investing activities (67,323) (103,328) (151,831) (68,284) (85,314) (80,312) (70,276) (70,281) (70,279)
Cash flows from financing activities
Cash flows from financing activities Proceeds from exercise of stock options 18,591 18,591 18,591 18,591 2,045 -
Repurchase of class A common stock (18,046) (29,585) (7,859) Dividend Payments (49,524) (52,637) (55,611) (57,485) (59,408) (61,174)
Proceeds from exercise of stock options 5,727 2,541 27,272 Deferred income tax liabilities (8,368) 2,661 2,544 1,602 1,644 1,510
Proceeds from note payable 628 - - Current portion of debt & capital lease obligations (5) (5) (4) (4) (3) (3)
Cash paid on note payable & capital lease - (787) (53) Debt & capital lease obligations, less current portion (50) (45) (41) (37) (33) (30)
Excess tax benefit from stock-based compensation arrangements 7,894 5,282 17,353 Common Equity (Treasury Purchases) (29,600) (29,600) (40,000) (40,000) (40,000) (40,000)
Net proceeds from sale of investment shares 803 956 785 Accumulated other comprehensive income (loss), net of tax 392 - - - - -
Net cash flows from financing activities (2,994) (21,593) 37,498 (68,564) (61,034) (74,521) (77,332) (95,756) (99,697)
Change in cash & cash equivalents 25,013 (24,939) 26,878 Change in cash & cash equivalents 34,078 20,207 22,629 37,124 24,548 25,921
Cash & cash equivalents at beginning of year 49,450 74,463 49,524 Cash & cash equivalents at beginning of year 76402 110479.7 130686.65 153315.61 190439.58 214987.31
Cash & cash equivalents at end of year 74,463 49,524 76,402 Cash & cash equivalents at end of year 110,480 130,687 153,316 190,440 214,987 240,908

Common Size Income Statement
Net revenue 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Cost of goods sold 42.19% 44.41% 44.61% 42.61% 42.61% 42.61% 42.61% 42.61% 42.61%
Depreciation 3.48% 3.50% 3.89% 4.77% 4.84% 4.96% 5.07% 5.05% 5.04%
Gross profit 54.33% 52.08% 51.50% 52.61% 52.55% 52.43% 52.32% 52.34% 52.35%
Operating expenses:
Advertising, promotional & selling expenses 29.18% 28.13% 27.76% 27.00% 26.95% 26.93% 26.90% 26.88% 26.86%
General & administrative expenses 8.65% 8.43% 7.31% 7.28% 7.25% 7.25% 7.22% 7.22% 7.19%
Impairment of long-lived assets 0.03% 0.21% 0.20% 0.09% 0.09% 0.08% 0.08% 0.08% 0.08%
Settlement proceeds - - - - - - - - -
Total operating expenses 37.85% 36.78% 35.26% 34.37% 34.29% 34.26% 34.20% 34.18% 34.13%
Operating income 16.47% 15.30% 16.23% 18.24% 18.26% 18.17% 18.12% 18.16% 18.22%
Interest income (expense) 0.01% 0.004% 0.002% 0.002% 0.002% 0.002% 0.002% 0.002% 0.002%
Other income (expense), net -0.02% -0.08% -0.11% -0.03% -0.03% -0.02% -0.02% -0.02% -0.02%
Total other income (expense), net -0.01% -0.07% -0.11% -0.02% -0.02% -0.02% -0.02% -0.02% -0.02%
Income (loss) before provision for income taxes 16.46% 15.23% 16.12% 18.22% 18.24% 18.15% 18.10% 18.14% 18.20%
Provision (benefit) for income taxes 6.21% 5.70% 6.07% 6.74% 6.75% 6.71% 6.70% 6.71% 6.74%
Net income (loss) 10.25% 9.52% 10.05% 11.48% 11.49% 11.43% 11.40% 11.43% 11.47%

Common Size Balance Sheet
Current Assets:
Cash & cash equivalents 12.83% 6.70% 8.46% 11.52% 12.84% 14.18% 17.00% 18.61% 20.32%
Accounts receivable, net 5.43% 5.68% 4.08% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%
Inventories 7.65% 7.63% 5.68% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%
Prepaid expenses & other assets 1.14% 1.44% 1.43% 1.34% 1.34% 1.34% 1.34% 1.34% 1.34%
Income taxes receivable 0.28% 0.14% 2.36% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Deferred income taxes 0.93% 0.77% 0.96% 0.18% 0.18% 0.18% 0.18% 0.18% 0.18%
Total current assets 27.98% 22.23% 22.97% 23.54% 24.86% 26.20% 29.02% 30.63% 32.34%
Property, plant & equipment, gross 53.55% 55.43% 61.35% 65.59% 70.13% 73.45% 77.13% 80.85% 84.70%
Less accumulated depreciation 20.81% 19.37% 19.09% 22.75% 26.27% 29.70% 33.73% 37.76% 41.83%
Property, plant & equipment, net 32.74% 36.07% 42.26% 42.83% 43.85% 43.75% 43.40% 43.10% 42.86%
Other assets 0.80% 1.29% 1.38% 1.32% 1.26% 1.21% 1.18% 1.17% 1.15%
Goodwill 0.44% 0.50% 0.41% 0.38% 0.36% 0.34% 0.33% 0.32% 0.31%
TOTAL ASSETS 61.96% 60.09% 67.02% 68.08% 70.33% 71.50% 73.93% 75.21% 76.67%
Current Liabilities:
Accounts payable 4.88% 4.66% 3.94% 3.87% 3.87% 3.87% 3.87% 3.87% 3.87%
Current portion of debt & capital lease obligations 0.01% 0.01% 0.01% 0.01% 0.00% 0.00% 0.00% 0.00% 0.00%
Accrued expenses & other current liabilities 10.43% 9.46% 8.25% 8.25% 8.25% 8.25% 8.25% 8.25% 8.25%
Total current liabilities 15.32% 14.12% 12.20% 12.12% 12.12% 12.12% 12.12% 12.12% 12.12%
Deferred income taxes 3.53% 4.38% 5.62% 4.42% 4.42% 4.40% 4.39% 4.40% 4.41%
Debt & capital lease obligations, less current portion 0.10% 0.08% 0.06% 0.05% 0.04% 0.04% 0.03% 0.03% 0.02%
Other liabilities 0.77% 0.63% 0.84% 0.81% 0.77% 0.74% 0.72% 0.71% 0.71%
Total liabilities 19.72% 19.21% 18.72% 17.40% 17.36% 17.30% 17.27% 17.26% 17.26%
Common Equity 27.13% 23.43% 24.92% 25.41% 25.76% 25.98% 26.73% 26.10% 25.43%
Accumulated other comprehensive income (loss), net of tax-0.15% -0.06% -0.13% -0.08% -0.07% -0.07% -0.07% -0.06% -0.06%
Retained earnings (accumulated deficit) 15.26% 17.50% 23.50% 28.44% 33.11% 37.47% 42.43% 47.43% 52.53%
Common stock held in treasury, at cost 0.00% 0.00% 0.00% -3.09% -5.81% -9.18% -12.43% -15.51% -18.49%
Total stockholders' equity (deficit) 42.24% 40.87% 48.30% 50.68% 52.98% 54.21% 56.67% 57.95% 59.41%
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 61.96% 60.09% 67.02% 68.08% 70.33% 71.50% 73.93% 75.21% 76.67%

Value Driver Estimation
NOPLAT
Net Revenues 580,222 739,053 903,007 958,984 1,018,133 1,080,932 1,120,175 1,155,158 1,185,370
Less:
Cost of Sales 244,804 328,228 402,858 408,638 433,842 460,601 477,324 492,230 505,104
Depreciation 20,208 25,903 35,138 45,788 49,294 53,578 56,749 58,339 59,738
Advertising, promotional & selling expenses 169,306 207,930 250,696 258,926 274,387 291,095 301,327 310,506 318,391
General & administrative expenses 50,171 62,332 65,971 69,814 73,815 78,368 80,877 83,402 85,228
EBITA 95,733 114,660 148,344 175,818 186,796 197,289 203,899 210,679 216,909
Less Adjusted Taxes:
Marginal Tax Rate 35% 35% 35% 35% 35% 35% 35% 35% 35%
Income Tax Provision 36,050 42,149 54,851 64,635 68,697 72,579 75,025 77,534 79,839
Tax Shield on Non-operating Income & Expenses:
Impairment of long-lived assets 52 548 622 312 312 312 312 312 312
Settlement proceeds - - - - - - - - -
Other income (expense), net 34 583 994 91 91 91 91 91 91
Interest income (expense) 11 11 7 7 7 7 7 7 7
Adjusted Taxes 36,126 43,270 56,460 65,030 69,092 72,974 75,420 77,929 80,234
Add Change in Deferred Taxes:
Deferred Tax Liability 20,463 32,394 50,717 42,349 45,010 47,554 49,156 50,800 52,310
Deferred Tax Asset 5,411 5,712 8,685 1,770 1,881 1,987 2,054 2,123 2,186
Net Deferred Taxes 2,066 11,630 15,350 (1,453) 2,550 2,438 1,535 1,575 1,447
Change in deferred taxes 2,519 9,564 3,720 (16,803) 4,003 (112) (902) 40 (128)
NOPLAT 62,126 80,954 95,604 93,985 121,707 124,202 127,576 132,791 136,547
INVESTED CAPITAL
Net Operating Working Capital :
Normal Cash 11,604 14,781 18,060 19,180 20,363 21,619 22,403 23,103 23,707
Accounts receivable, net 31,479 42,001 36,860 43,154 45,816 48,642 50,408 51,982 53,342
Inventories 31,479 42,001 36,860 43,154 45,816 48,642 50,408 51,982 53,342
Prepaid expenses & other assets 44,361 56,397 51,307 57,539 61,088 64,856 67,210 69,309 71,122
Income taxes receivable 6,628 10,644 12,887 12,817 13,608 14,447 14,972 15,439 15,843
Operating Current Assets 125,551 165,824 155,974 175,845 186,690 198,206 205,401 211,816 217,356
Accounts payable 28,303 34,424 35,576 37,096 39,384 41,813 43,331 44,685 45,853
Accrued expenses & other current liabilities 60,529 69,900 74,539 79,116 83,996 89,177 92,414 95,301 97,793
Operating Current Liabilities 88,832 104,324 110,115 116,212 123,380 130,990 135,746 139,985 143,646
Net Operating Working Capital 36,719 61,500 45,859 59,632 63,310 67,216 69,656 71,831 73,710
Property, plant & equipment, net 189,948 266,558 381,569 410,781 446,487 472,909 486,160 497,820 508,082
Invested Capital 226,667 328,058 427,428 470,413 509,798 540,124 555,815 569,652 581,792
RETURN ON INVESTED CAPITAL (ROIC)
NOPLAT 62,126 80,954 95,604 93,985 121,707 124,202 127,576 132,791 136,547
Invested Capital t-1 181,940 226,667 328,058 427,428 470,413 509,798 540,124 555,815 569,652
ROIC 34.15% 35.72% 29.14% 21.99% 25.87% 24.36% 23.62% 23.89% 23.97%
FREE CASH FLOW (FCF)
NOPLAT 62,126 80,954 95,604 93,985 121,707 124,202 127,576 132,791 136,547
Invested Capital 226,667 328,058 427,428 470,413 509,798 540,124 555,815 569,652 581,792
Δ Invested Capital 44,727 101,391 99,370 42,985 39,384 30,327 15,691 13,836 12,140
FCF 17,399 (20,436) (3,766) 51,000 82,322 93,876 111,885 118,954 124,407
ECONOMIC PROFIT (EP)
BEG. IC 181,940 226,667 328,058 427,428 470,413 509,798 540,124 555,815 569,652
ROIC - WACC 27.27% 28.84% 22.27% 15.12% 19.00% 17.49% 16.75% 17.02% 17.10%
EP 49,623 65,378 73,060 64,612 89,380 89,169 90,459 94,594 97,400

Weighted Average Cost of Capital (WACC) Estimation
Risk Free Rate 3.09%
Market Risk Premium 4.85%
Beta 0.78
Risk Free Rate - 30 Yr US Treasury 3.09%
Spread on SAM Term Note 1.16%
Pretax Cost of Debt 4.25%
Marginal Tax Rate 35.00%
After tax Cost of Debt 2.76%
Equity :
Stock Price $201.9
No. of Shares Outstanding 13,016
Market Value (Thousands) $2,628,011
Debt:
Short Term Debt 55
Long term Debt 528
Total Value of Debt $583.0
Total Value $2,628,594.16
Equity Weight 99.98%
Debt Weight 0.022%
WACC 6.87%
Cost of Equity (CAPM)
Cost of Debt
Weights

Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models
Key Inputs:
CV Growth 2.62%
CV ROIC 23.97%
WACC 6.87%
Fiscal Years Ending Dec. 31 2015E 2016E 2017E 2018E 2019E 2020E
DCF Model
Free Cash Flow 51,000 82,322 93,876 111,885 118,954 124,407
Continuing Value 2,857,847
Periods to Discount 1 2 3 4 5
Discounted Free Cash flow 47,721 72,076 76,906 85,766 2,135,150
Sum of Discounted FCF 2,417,618
Add:
Excess Cash 58,342
Other assets 12,447
Less:
Current portion of debt & capital lease obligations 55
Debt & capital lease obligations, less current portion 528
Other liabilities 7,606
Equity Value 2,480,218
Shares Outstanding ('000) 13,016
Share Price @ Dec. 2014 190.55
EP Model
Fiscal Years Ending 2015E 2016E 2017E 2018E 2019E 2020E
Invested Capital 427,428
Economic Profit 64,612 89,380 89,169 90,459 94,594 97,400
Continuing Value 2,288,195
Periods to Discount 1 2 3 4 5 6
Discounted EP 60,457 78,255 73,050 69,341 1,709,087
Sum of Discounted EP 1,990,190
Invested Capital 427,428
Add:
Excess Cash 58342
Other assets 12447
Less:
Current portion of debt & capital lease obligations 55
Debt & capital lease obligations, less current portion 528
Other liabilities 7606
Equity Value 2,480,218
Shares Outstanding ('000) 13,016
Share Price @ Dec. 2014 190.55
Today 11/6/2015
Next FYE 12/31/2015
Last FYE 12/31/2014
Days in FY 365
Days after FYE 310
Elapsed Fraction 0.849
R* 6.87%
Price Today ( 10 months time elapse) $201.61
Target Year-end Price (Dec. 2015) $203.86

Dividend Discount Model (DDM) or Fundamental P/E Valuation Model
Fiscal Years Ending Dec. 31 2015E 2016E 2017E 2018E 2019E 2020E
EPS 8.32$ 8.71$ 9.09$ 9.28$ 9.67$ 10.07$
Key Assumptions
CV growth 2.62%
CV ROE 20.31%
Future Cash Flows
P/E Multiple (CV Year) 20.46
EPS (CV Year) 10.07$
Future Stock Price 205.99$
Dividends Per Share 3.74 3.92 4.09 4.18 4.35
Discounting Periods 1 2 3 4 5
Discounted Cash Flows 3.50 3.43 3.35 3.20 150.86
Intrinsic Value 164.35$
Today 11/6/2015
Next FYE 12/31/2015
Last FYE 12/31/2014
Days in FY 365
Days after FYE 310
Elapsed Fraction 0.849
R* 6.87%
Price Today ( 10 months time elapse) $173.90
Target Year-end Price (Dec. 2015) $175.84

Relative Valuation Models
EPS EPS Est. 5yr
Ticker Company Price 2015E 2016E P/E 15 P/E 16 EPS gr. PEG 15
BREW Craft Brew Alliance $7.01 $0.10 $0.24 70.1 29.2 25.00 2.80
STZ Constellation Brands, Inc. Class A $132.11 $5.11 $5.81 25.9 22.7 14.35 1.80
BUD Anheuser-Busch Inbev Sa $118.96 $4.95 $5.23 24.0 22.7 6.90 3.48
DEO Diageo plc $113.55 $5.55 $6.05 20.5 18.8 4.90 4.18
TAP Molson Coors Brewing Company Class B $87.57 $3.82 $3.91 22.9 22.4 3.20 7.16
23.3 23.2 10.9 3.9
P/E 15 P/E 16 PEG 15
HEIA-NL Heineken NV $89.67 $3.53 $3.86 25.4 23.2 2.30
GCC-IE C&C Group Plc $3.93 $0.26 $0.27 15.1 14.6 15.60
SAB-GB SABMiller plc (SAB-GB) $60.07 $1.48 $1.59 40.6 37.8 5.90
Average 27.0 25.2 7.9
SAM The Boston Beer Company $201.90 8.32 8.71 24.3 23.2 6.8
Implied Value:
US Traded Comparables
Relative P/E (EPS15) $ 194.01
Relative P/E (EPS16) 201.88$
PEG Ratio (NTM) 220.07$
Non-US Traded Stocks
Relative P/E (EPS15) $ 224.94
Relative P/E (EPS16) 219.46$
PEG Ratio (NTM) 449.34$
Non-US Traded Stocks

Key Management Ratios
Liquidity Ratios
Current Ratio
Current Assets/Current Liabilities 1.83 1.57 1.88 1.94 2.05 2.16 2.39 2.53 2.67
Quick Ratio
Current Assets - Inventories/Current Liabilities 1.33 1.03 1.42 1.45 1.56 1.67 1.90 2.03 2.17
Cash Ratio
Cash & Cash equivalents/Current Liabilities 0.84 0.47 0.69 0.95 1.06 1.17 1.40 1.54 1.68
Activity or Asset-Management Ratios
Total Asset Turnover
Net Sales/Avg. Total Assets 1.84 1.84 1.72 1.52 1.49 1.45 1.40 1.36 1.33
Inventory Turnover
Cost of Sales/Avg. Inventory 6.24 6.52 7.48 7.51 7.31 7.31 7.23 7.21 7.19
Financial Leverage Ratios
LT Liabilities Ratio
Total Long-term Liabilities/Total Assets 0.0016 0.0013 0.0009 0.0007 0.0006 0.0005 0.0004 0.0004 0.0003
Equity Multiplier
Total Assets/Total Equity 1.47 1.47 1.39 1.34 1.33 1.32 1.30 1.30 1.29
Profitability Ratios
Gross Profit Margin
Gross Profit/Net Sales 54% 52% 51% 53% 53% 52% 52% 52% 52%
Net Profit Margin
Net Income/Net Sales 10% 10% 10% 11% 11% 11% 11% 11% 11%
ROA
Net Income/Avg. Total Assets 19% 18% 17% 17% 17% 17% 16% 16% 15%
ROE
Net Income/Avg. Total Equity 28% 18% 25% 24% 23% 22% 21% 20% 20%
Payout Policy Ratios
Dividend Payout
Dividends/Net Income 0% 0% 0% 45% 45% 45% 45% 45% 45%
Total Payout
Dividends + Treasury Repurchases/Net Income 30% 42% 9% 72% 70% 77% 76% 75% 74%
Retention Ratio
(Net Income-Dividends)/Net Income 70% 58% 91% 28% 30% 23% 24% 25% 26%

$203.86 0.33 0.48 0.63 0.78 0.93 1.08 1.23
1.42% 287.83 236.14 200.39 174.19 154.18 138.41 125.65
1.82% 317.70 254.40 212.40 182.52 160.17 142.83 129.00
2.22% 357.23 277.22 226.87 192.27 167.04 147.84 132.73
2.62% 412.00 306.56 244.61 203.86 175.02 153.54 136.93
3.02% 492.93 345.67 266.89 217.85 184.39 160.11 141.69
3.42% 624.66 400.41 295.70 235.08 195.55 167.74 147.12
3.82% 876.89 482.48 334.41 256.82 209.07 176.73 153.37
$203.86 1.59% 2.09% 2.59% 3.09% 3.59% 4.09% 4.59%
20.00% 311.89 264.94 230.49 204.14 183.34 166.51 152.61
25.00% 311.75 264.82 230.38 204.05 183.26 166.43 152.54
30.00% 311.61 264.69 230.28 203.95 183.17 166.35 152.46
35.00% 311.47 264.57 230.17 203.86 183.09 166.28 152.39
40.00% 311.33 264.45 230.06 203.76 183.00 166.20 152.32
45.00% 311.18 264.33 229.96 203.67 182.92 166.12 152.25
50.00% 311.04 264.21 229.85 203.57 182.83 166.04 152.18
$203.86 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00%
1.59% 202.84 229.30 264.00 311.47 380.37 489.44 688.23
2.09% 182.11 203.06 229.67 264.57 312.37 381.81 491.92
2.59% 165.32 182.33 203.40 230.17 265.30 313.45 383.48
3.09% 151.44 165.55 182.66 203.86 230.80 266.18 314.70
3.59% 139.78 151.68 165.87 183.09 204.42 231.55 267.20
4.09% 129.85 140.03 151.99 166.28 183.61 205.10 232.43
4.59% 121.30 130.11 140.34 152.39 166.77 184.23 205.88
$203.86 0.70% 1.00% 1.30% 1.60% 1.90% 2.20% 2.50%
0.33 288.22 320.15 360.23 412.00 481.46 579.57 728.61
0.48 232.70 252.94 277.14 306.56 343.12 389.75 451.31
0.63 195.41 209.41 225.62 244.61 267.17 294.41 327.94
0.78 168.65 178.92 190.56 203.86 219.19 237.07 258.19
0.93 148.51 156.39 165.17 175.02 186.14 198.81 213.35
1.08 132.82 139.06 145.94 153.54 162.00 171.46 182.11
1.23 120.25 125.33 130.87 136.93 143.59 150.95 159.11
Depletion Growth rate
RiskFreeRate
Inflation Rate
Beta
Beta
Risk Free Rate
CVGrowthRateMarginalTax

SAM_L.Tamakloe.2015

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