Is Molson Coors' Undervalued Stock and Dividend a Buy Amid Industry Headwinds?

Molson Coors Beverage Company (NYSE: TAP) has faced a fresh wave of skepticism from analysts, with Piper Sandler recently cutting its price target to $53 from $58—a move that underscores growing concerns about slowing sales, rising costs, and shifting consumer preferences. Yet, the stock's current valuation and dividend yield suggest a compelling case for long-term investors willing to navigate near-term risks.

The Near-Term Challenges: Slowing Momentum and Cost Pressures

Piper Sandler's downgrade on June 23, 2025, highlighted two critical issues: declining U.S. retail volumes and rising aluminum prices. Second-quarter U.S. retail sales fell by 5% year-to-date, while the company's first-quarter 2025 results missed expectations, with EPS of $0.50 versus forecasts of $0.83 and revenue of $2.3 billion versus a $2.42 billion target. These misses prompted Molson Coors to revise its full-year guidance, now projecting low single-digit declines in net sales and underlying pretax income.

Adding to the pressure, aluminum costs—critical for packaging—are surging. Piper Sandler noted the “difficult to hedge” Midwest Premium rates, which are squeezing margins. While the company has pivoted to premiumization (e.g., craft beers) and non-alcoholic beverages, these strategies require time to offset macroeconomic headwinds, including inflation and a sluggish consumer environment.

Valuation: A Discounted Dividend Machine?

At a price of $47.48 on June 23, 2025, Molson Coors trades at a P/E ratio of 10.36x—a significant discount to its five-year average of 16.7x. Meanwhile, its 3.91% dividend yield ranks among the highest in the beverage sector, offering a cushion for investors.

The discounted valuation reflects skepticism about the company's ability to stabilize sales and margins. Piper Sandler's $53 price target, based on a 9.0x multiple of its revised 2026 EPS estimate ($6.35), implies limited optimism about near-term recovery. However, the stock's current P/E is also below its long-term average, suggesting it could rebound if the company executes on its strategic shifts.

The Dividend: Sustainable or at Risk?

Molson Coors' dividend has been a pillar of shareholder returns, with a payout ratio of ~40% in recent years. Even under revised EPS guidance, the current dividend of $2.20 annually (implying a payout ratio of ~37% of Piper Sandler's 2026 EPS estimate) appears sustainable. However, further earnings declines or margin pressures could force a dividend cut—a risk that investors must weigh against the yield's allure.

A Strategic Pivot: Can Premiumization and Non-Alcoholic Drinks Turn the Tide?

Molson Coors is doubling down on premium and non-alcoholic products, which historically command higher margins. Its equity stake in Fever-Tree Drinks plc—a leader in premium mixers—hints at a broader strategy to capitalize on the premiumization trend. Additionally, the company's balance sheet remains flexible, with net debt/EBITDA at 2.47x, providing room for investment without overleveraging.

The Bottom Line: A Buy, Hold, or Sell?

The stock's valuation and dividend yield make it an intriguing opportunity for income-focused investors, but near-term risks remain significant. Analysts' mixed reactions—UBS cut its target to $59, while Evercore ISI maintained an Outperform rating at $60—reflect uncertainty about the path forward.

Buy for income, but proceed cautiously:
- The 3.91% dividend yield is compelling, especially in a low-yield environment. Historically, buying TAP one day before earnings announcements and holding until a 10% gain or 60 days has delivered an average 2% rise on earnings day, with consistent performance over the holding period. This strategy could amplify returns while waiting for operational stability.
- The stock's P/E is below historical averages, suggesting potential upside if the company stabilizes its performance.

Hold if you prioritize stability:
- The beverage industry's challenges—shifting consumer preferences, macroeconomic pressures—are unlikely to resolve quickly.
- Analysts' consensus remains a “Hold” with a $62.12 average price target, signaling mixed sentiment.

Avoid if you demand growth:
- Low single-digit sales declines and margin pressures make TAP a poor fit for growth-oriented portfolios.

Final Take

Molson Coors is a classic “value trap” candidate: its valuation and dividend are enticing, but the company must prove it can navigate industry headwinds to justify a rebound. For now, the stock may appeal to patient investors willing to hold through volatility, but aggressive buyers should wait for clearer signs of stabilization in sales or margin improvement.

In the end, TAP's true value hinges on execution. Until then, the dividend provides a floor, but the path to outperformance requires more than just a cheap stock—it requires results.