Molson Coors: A Defensive Stock for 2025?

As an investor, you're always on the lookout for undervalued stocks that can provide a solid return on investment. One company that has caught my eye is Molson Coors Beverage Company (TAP), a global brewer with a strong portfolio of brands and a history of dividend growth. But is TAP an undervalued defensive stock for 2025? Let's dive in and find out.

First, let's take a look at TAP's valuation. The stock is currently trading at a trailing PE ratio of 12.49, which is lower than the industry average of 40.1x. Additionally, TAP's forward PE ratio is 9.37, indicating that the market expects the company's earnings to grow significantly in the coming years. This low valuation suggests that TAP may be undervalued compared to its peers and the broader market.

Another key metric to consider is TAP's dividend history and yield. The company pays an annual dividend of $1.76, which amounts to a dividend yield of 3.19%. This yield is higher than the average dividend yield of 2.49% for the Beverage industry. Furthermore, TAP's dividend has grown by 7.32% year-over-year, indicating a consistent and growing payout to shareholders. In comparison, the average dividend growth rate for the Beverage industry is 4.24%. TAP's dividend payout ratio is 39.81%, which is lower than the industry average of 39.17%, suggesting that the company is not overpaying its shareholders in the form of dividends. Lastly, TAP's shareholder yield, which combines the dividend yield and buyback yield, is 5.25%, which is higher than the industry average of 4.55%. This indicates that TAP is returning more capital to shareholders through dividends and share repurchases compared to its peers.

Now, let's consider the bullish and bearish perspectives on TAP's stock outlook. Bulls argue that Molson Coors Beverage demonstrates a strong outlook, underpinned by anticipated earnings per share (EPS) growth of approximately 7% driven by share buybacks and improved operational performance. The company is benefiting from higher consumer takeaways within its beer portfolio, with positive trends in premiumization and supply chain efficiencies contributing to an increased EBIT of approximately 4%. Additionally, the implementation of onshoring strategies, such as the success of Peroni, alongside projected capital returns through significant share repurchases, positions Molson Coors favorably for long-term sustainable growth in a competitive market.

On the other hand, bears caution that Molson Coors Beverage's stock outlook is negatively influenced by projected low single-digit earnings per share growth estimates for 2025, which significantly underperform the company's long-term high single-digit growth target. Risks include potential contractions in market share for key brands like Miller Lite and Coors Light due to deteriorating consumer health, as well as a broader slowdown in the beer category, which could adversely affect both revenue and profit targets, leading to a projected consolidated profit before tax growth of just over 3%—below the company's own medium-term growth forecast. Furthermore, the loss of shelf space to competitor brands like Bud Light could exacerbate revenue declines, while anticipated volume losses in North America stemming from contract issues and volume pull-forwards suggest ongoing challenges in maintaining market share and profitability.

In conclusion, Molson Coors Beverage Company (TAP) appears to be an undervalued defensive stock for 2025, given its low valuation, strong dividend history, and potential for earnings growth. While there are risks to consider, such as market share contractions and a slowdown in the beer category, the company's bullish case for long-term sustainable growth makes a compelling argument for investing in TAP. As always, it's essential to conduct thorough research and consider your risk tolerance before making any investment decisions.