Profit Pregame

One Beverage Company Could Make a Big Splash this Summer

New Lines Could Quench Investors’ Thirst for Profits

As consumer trends change, a giant in the beverage space is adding some huge names to its arsenal.

What’s happening?

As the hot summer weather approaches, thirsty consumers have more choices than ever when reaching into the fridge.

In recent years, beverage companies have been expanding their offerings to reach new buyers. And two types of drinks in particular – energy drinks and hard seltzers – have become absolute cash cows.

Energy drinks command a roughly $60 billion market with growth estimates to more than $86 billion by 2026.

Even the much newer hard seltzer products generated $4.4 billion in 2019 – and that number is expected to more than triple to $14.4 billion by 2027.

And one company is making huge moves – with some very big names – this summer to capitalize on the growing popularity of both.

Where’s the money?

You certainly can’t accuse Molson Coors Beverage Company (TAP) of resting on its laurels.

Despite already being one of the most popular beverage companies – with consumer favorite brands like Coors, Blue Moon, Miller, and dozens more – TAP has recently launched two new brands to take advantage of growing trends.

As we’ve discussed here before, hard seltzers are the hottest craze in the beverage space, with off-premises sales skyrocketing by 160% in 2020. Meanwhile, beer sales only grew by 15%.

In March, Molson Coors partnered with beverage giant The Coca-Cola Company (KO) in a deal to manufacture, market, and distribute its new Topo Chico line of hard seltzers. Early returns from the limited nine-state rollout have been promising, with Topo Chico grabbing as much as 20% of the hard seltzer market share in Texas. It was also the third best-selling brand in Chicago on alcohol delivery site Drizly.

In the energy drink space, Molson Coors has tapped one of the biggest names in entertainment for its new brand. Dwayne “The Rock” Johnson has partnered with TAP and will serve as the front man for the new line of ZOA energy drinks.

Johnson’s star power will likely bring a ton of attention to the new venture as TAP tries to snatch as much of the $16 billion U.S. energy drink market as it can in the coming months.

And as we’re standing on the precipice of a potentially huge uptick in sales for bars and restaurants, many investors are looking at this as a great time to acquire shares of TAP.

Here’s what I think…

How do I get some?

TAP stock has had a phenomenal run up since mid-February to all-time highs.

I think that the moves to break into new markets and offer a greater range of products will end up paying off big-time in the end. And there are a lot of tailwinds that are working in their favor right now.

The problem is I think that the hard seltzer market is saturated and there is too much competition. With so many other companies looking to capitalize of the huge success of brands like White Claw and Truly, I think sales of Topo Chico are likely to underwhelm for the time being until TAP can establish a greater market share.

I like TAP as a long-term play, but rather than buy here, I would look for a pullback to the $50 level.

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In the Spotlight: The rumors were true…

Last week, I reported on the whispers that Verizon Communications Inc. (VZ) was in talks to sell the media arm of its business.

Turns out it was more than just speculation.

News broke yesterday that a deal between Verizon and Apollo Global had been reached to sell the media arm of Verizon for $5 billion.

The bargain includes some big names in the media space such as Yahoo! and AOL, which Verizon had paid a high price for, but which never managed to turn a profit.

Verizon will now turn its focus back to improving and expanding on its telecommunications business.

VZ stock was relatively flat yesterday after the announcement, but I like this name as a long-term play, and I will be keeping a sharp eye on it for any further developments or good buying opportunities. Stay tuned.

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