#$sam

It’s been difficult to find bright spots this earnings season, and with less than 25% of the S&P 500 left to report, it looks like the fourth quarter will close as one of the worst since the recession. Not since the third quarter of 2009 has both top and bottom-line growth for the index come in negative, with current figures standing at -3.5% and -2.9%, respectively.

With that said, there are a handful of names reporting this week that carry a very bullish signal. The following 5 companies have a significant positive delta between the crowdsourced Estimize consensus and the Wall Street consensus, and also have a strong track record of beating analyst estimates. Even so, this quarter has forced us to question a value of a beat in this environment, with forward looking guidance capturing most of the attention of nervous investors.

To have your expectations included in the Estimize consensus for this week’s reports, get your estimates in here!

Zendesk was one of our picks for stocks to watch in 2016. Despite the recent unwarranted collapse of enterprise tech names, the US economy by many measures still seems to be in good standing, and that means companies will be investing in the cloud and into their own growth. For the current quarter, the Estimize community is looking for EPS of -$0.05, only two cents higher than Wall Street, but sell-side estimates have been lifting into the report.

Zendesk competes in the customer data management space and is taking on the big guys like Salesforce. Since IPOing in May 2014, the company has had a laser focus on growing revenues, resulting in top-line growth of 63%+ over the last 4 quarters. While still unprofitable, EPS has been trending in the right direction, and the company has beaten Wall Street estimates every quarter.

As of October, ZEN had more than 64,000 customers, up from 50k earlier in the year, and the percentage of clients with 100 or more seats accounted for 30% of recurring revenue. Recent acquisitions such as We Are Cloud certainly strengthen its portfolio and makes it a formidable contender against similar cloud analytics products from Salesforce and Amazon.

Fashion accessory company, Fossil, is also scheduled to report after today’s closing bell. Currently, the Estimize community is looking for EPS of $1.36, a sizeable 7 cents ahead of Street. This is a company that tends to beat the Estimize EPS consensus 63% of the time historically, and the Wall Street consensus an even greater 90% of the time. Despite the wide delta, this still suggests a 54% decline in YoY profits. Fossil is coming off a year which saw share prices fall 67% due to a decline in its portfolio of licensed brands, weaker watch sales, and sluggish international performance from currency headwinds.

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Growth of Fossil’s flagship product, watches, turned negative in 2015 for the first time in 5 years, due to a weakened portfolio of licensed brands and market saturation. Slower demand for Michael Kors products has played a large role in Fossil’s sales decline. The Kors brand represents roughly 25% of Fossil’s revenue and has contributed to almost 50% of the company’s sales growth in the past 5 years.

However, the company’s biggest threat comes from the increased popularity of tech accessories including smartwatches and activity trackers. As a result, the company is adjusting its strategy by leaning on investments in smart accessories to revive growth and capture a share of the robust wearables market. Last quarter, Fossil rolled out a line of Fossil branded watches in partnership with Google and Intel, they also recently acquired Misfit, a producer and manufacturer of wearables.

The last couple of years haven’t been kind to semiconductors and chipmakers, but after tomorrow’s closing bell we might just get some welcomed news from Nvidia. The Estimize community is calling for EPS of $0.34 on this name, as compared to the Street’s estimate of $0.32. Current estimates reflect an uptick of 35% from Estimize and 18% from the sell-side over the last 3 months. Nvidia historically has surpassed the Estimize consensus 69% of the time, and that number bumps up to 75% for Wall Street.

“How can a semiconductor company be doing well in this environment?,” you may ask, considering the freefall of the PC market and the negative impact of the stronger dollar. Nvidia has kept it’s head above water due to its focus on gaming which accounts for more than 58% of total revenues. The strong momentum in the company’s graphic card sales drove the stock 64% higher in 2015. The gaming business is expected to be a growth driver once again in 2016 as NVDA diversifies from traditional PC gaming into virtual reality. However, the company’s fastest growing segment is autonomous driving, with revenues estimated to have grown 85% in FY 2015.

Craft beer is having a moment, and it’s certainly been beneficial for the Boston Beer Company. The Estimize EPS consensus for Q4 currently stands at $1.21, a dime higher than Wall Street expectations. While this name only beats the Estimize consensus 50% of the time, their history of beating the Street is considerably higher at 63%. Despite coming off of another strong beat last quarter, heavy revisions have brought earnings estimates down 16%.

SAM faces a number of headwinds this quarter. Consistent efforts to build its portfolio of drinks have been key to revenue growth, but a slowdown in depletion trends towards the end of the year points to stiff competition in the craft beer market as well as weakness in the cider category. Hard cider which makes up 20% of total revenues, was hit hard by the popularity of hard root beer in 2015. The first mover in this category was Small Town Brewery's Not Your Father's Root Beer which managed to capture 80% of the market, while SAM’s competing product, Coney Island Hard Root Beer only held onto 18%.

International expansion could be the key to future growth for the Boston Beer Company, however, as they focus on acquiring assets to expand geographically and grab market share overseas. The Indian market in particular is considered a goldmine for company.

Last on our list is Virgin America, which sits in a segment that has done very well so far in the fourth quarter. Analysts from Estimize predict the domestic airliner will report profits of $1.31 on Thursday, higher than the Street’s $1.24. Revenues of $395.5M are also slightly higher. While the company has historically beaten the Estimize consensus 50% and 67%, respectively, on these two metrics, that number increases to 100% when using the Wall Street consensus. With only 4 quarters as a public company, the Estimize community has been more accurate on this name in each of those periods.

One big trend culled this earnings season was the disparity in results for discount airlines vs. larger carriers. Discount domestic airlines that fly to very few, if any, international destinations, do not have to contend with the stronger dollar impact. Currency headwinds have been such a drag on multinational airlines, that several large carriers have decreased international routes. Virgin America is expected to go the way of it’s contemporaries, JetBlue, Spirit and Allegiant, all which had fantastic quarters when compared to international airliners such as Delta, United Continental and American Airlines.

Be sure to get your estimates in for all of these names here!

Boston Beer Co., makers of the ever-popular Sam Adams beer, is set to report 3Q2015 earnings today after market close. The Estimize consensus is expecting EPS of $2.72 and revenue of $247.33 million. Wall Street analysts have predicted EPS of $2.69 and significantly lower revenue of $234.5 million. The group’s stock has grown over 370% since 2010, partly because of the introduction and mass popularity of craft beer. The beer industry has seen an overhaul over the past few years, as Boston Beer Co. has become the largest US craft beer-brewing company. Let’s take a look at a few key points to consider before the earnings conference call later this afternoon.

Innovation Efforts

In late September, Jim Koch, founder of Boston Beer Co., announced a new direction for the beer distributor. In what is considered a substantial shakeup to the already popular Samuel Adams Beer line, the addition of nitrogen-carbonated beers is an interesting one. Koch is known as an innovator and this new plan for a different style of beer could be a low-key revelation. The new line will consist of a white ale, an IPA (India Pale Ale), and a coffee stout. The new products will hit the shelves in February of 2016.

Adding a new style of beer isn’t a simple process. The company is making a significant investment into different ingredients and other supplies like canning materials. Furthermore, the canning system will be revamped and each canned beer will contain a nitrogen filled plastic sphere that will emulate the taste and effect of drinking the beer on tap. The shift to this new style of beverage follows Guiness’ plan to reveal a nitrogen based IPA. Currently, Guiness is considered the industry standard for its nitro based beverages.

Competition

“Big Beer” rivals Anheuser-Busch and SABMiller have been suffering declines in beer volume due to the massive popularity of craft beers. Though Anheuser-Busch is the #1 beer company in the market, craft beer companies like Boston Beer Co. have been eating into their profits. To combat this, both AB and SABMiller have acquired several craft beer companies over the past few months.

The Samuel Adams producers are aware of these moves and have attempted to extend and broaden their consumer reach. Outside the realm of craft beer connoisseurs exists a group that has a taste for a far simpler and sometimes sweeter beverage. Through other brands such as Angry Orchard, Twisted Tea, and Coney Island Hard Root Beer, the company is focusing on reaching the consumers interested in alcoholic non-beer drinks. Boston Beer Co. may not be a huge earnings winner today, but in the long term, the beer giants are set up for great success.

SAM data by YCharts

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Note to Big Beer: Beware the affronted beard!

MillerCoors, the joint venture between SABMiller plc and Molson Coors Brewing Company, is facing a class-action lawsuit from craft beer enthusiasts for having the audacity to imply that Blue Moon—one of the fastest-growing beer brands in America—was a craft beer. 

Given the affection that hipsters have for all things vintage, retro, and old-man chic, I’m a little surprised the lead plaintiff didn’t slap the MillerCoors marketing director with a white riding glove and demand satisfaction with pistols at dawn. Such was the offense taken. 

I personally like Blue Moon, and I expect the suit to eventually be thrown out and groundless. But the plaintiffs do raise interesting points when they claim that MillerCoors went to “great lengths to disassociate Blue Moon beer from the MillerCoors name.” 

We see this all the time in marketing. General Motors doesn’t exactly go out of its way in its Cadillac Escalade ads to point out that it also makes the everyman’s Chevy Silverado pickup truck. And I could find no mention of parent company Swatch Group, maker of the kitschy plastic Swatch watches, on the website for it upscale Omega watches. Image is the core of marketing, and MillerCoors is simply playing the game.

But in the case of craft beer, with its focus on small-batch and local brewing, association with a megabrewer is the kiss of death. And this is a major problem for Big Beer, as this is the only corner of the American beer market that is really growing these days. Overall beer sales were flat last year (up a measly 0.5%) and actually fell by 2% the year before. Yet craft beer sales are growing at 17.6% per year and now make up a sizable (and profitable) chunk of the market. Craft beer accounts for 11% of volume yet 19% of dollar sales. Spend any time in a pub frequented by beer snobs, and you'll notice the price difference in your bar tab very quickly. 

Late last year, I wrote about the challenges Anheuser-Busch InBev's faced in its attempts to buy its way into the craft beer market. There are essentially two issues at play. The first is image. Craft beer is a luxury good subject to the changing whims of fashion. A sense of uniqueness or exclusivity is needed to convince drinkers to pay a premium over domestic Bud Light, and that is a tough act for a megabrewer to pull off. 

The second issue is economies of scale. The beauty of Big Beer operations is their massive and efficient production and distribution. But this goes completely out the window when you buy a locally-produced microbrew. Mass producing it and selling it nationally—or globally—kills the “buy it local” vibe that made it popular to begin with. But keeping it local neutralizes Big Beer's marketing and distribution power. 

So, what is Big Beer to do? 

While the megabrewers are in a tough spot, I would argue that their strategy is broadly the right one. Miller, Bud and Heineken will never be able to please the true hipster beer snob because the essense of hipsterism is the ability to one-up your friends by name dropping obscure references. Blue Moon is already far too popular to satisfy the thirst of a true hipster.

But this subsector of the beer-drinking population is also small minority. MillerCoors is going after a much broader market: Higher-income casual drinkers looking to order a beer or two after work. It's essentially the Sam Adam's Boston Beer crowd.

Boston Beer is actually an interesting case study. You could call Sam Adams the vanguard of the craft beer revolution, and SAM stock has been one of the best growth plays of the past decade. Sam Adams drinkers like a good, premium beer, but their tastes are still pretty mainstream. Big Beer can compete well in this space with brands like Blue Moon. 

I'm somewhat wary of the entire beer sector right now based on price. Boston Beer trades hands at 35 times trailing earnings, and this is after the recent share-price correction. Molson Coors and Heineken each trade at 27 times trailing earnings, and Anheuser-Busch InBev at 22. I would consider all to be worthy candidates on substantial pullbacks, but I'd avoid putting new money into them at current prices. 

Disclosures: Long HEINY

Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog.

This piece first appeared on InvestorPlace. 

Godfather of the craft beer movement, Boston Beer Co. (SAM), reports its 4th quarter earnings after the closing bell today. Interest in craft beer and the success of its Angry Orchard hard cider brand have propelled company shares 30% higher since the start of 2014. Heading into this afternoon's report investors' expectations are still sky high despite management guiding for a quiet quarter.

Last quarter Boston Beer left its full year earnings per share guidance unchanged between $6.00 and $6.40. After subtracting out earnings from the first three quarters of 2014 ($5.29), implied fourth quarter earnings guidance falls between $0.71 and  $1.11 per share. Based on expectations from Wall Street and contributing analysts on Estimize, these numbers appear to be a preposterous example of under-promising just to over-deliver. 

Boston Beer knocked expectations out of the park last quarter and investors expect them to crush their own guidance again this period. The real question is, exactly how strong will profits be? Wall Street is expecting $1.51 in earnings per share, contributing analysts on Estimize are predicting $1.60. 

Boston Beer has several catalysts fueling its fire. Its Angry Orchard cider business has dominated the flourishing US cider market out of nowhere. The Sam Adams Rebel IPA is a resounding success with beer drinkers. Co-founder and chairman Jim Koch said it was, "the largest, most successful craft beer launch in history." 

After the closing bell today we'll see if investors have gotten their fill or if Boston Beer can continue doing more to quench their thirst. 

Today's episode of This Week on Estimize features Yinon Ravid, Co-Founder and Co-CEO of OpenFolio.

Home Depot - Tuesday

Home Depot (HD), the largest home improvement retailer in the United States will report 4th quarter earnings before the opening on Tuesday. The company’s stock has been soaring in recent years on positive housing recovery data and a controlled expansion into e-commerce. 

On last quarter’s earnings call freshly appointed CEO Craig Menear said, “"The U.S. housing recovery continues to track in line with our expectations, with home price appreciation and housing turnover being the drivers of growth for our business,". Monday morning the housing recovery hit a bump in the road as existing home sales came in 4.8% below crowdsourced expectations.

Although January's existing housing sales were poor, Tuesday contributing analysts on Estimize expect Home Depot’s earnings to continue rising and reflect overall housing sector growth. The consensus expectation is that Home Depot will report earnings of 91 cents per share, 2 cents better than Wall Street is forecasting. 

Estimize contributors also believe Home Depot’s 4th quarter profits will improve by 25% compared to last year. That would be a small improvement on top of the 23% and 21% gains reported respectively over the past 2 quarters.

Home Away - Tuesday

Vacation home rental company Home Away (AWAY) is set to deliver its earnings on Tuesday after the close. Strong results from Marriott and Priceline suggest that American travel habits are back on the upswing. 

There may be juice in the travel industry right now, but HomeAway competes most directly with privately held Airbnb. Airbnb's most recent disclosures contain evidence of a "dramatic acceleration" according to Cowen and Co. Cowen expects Airbnb to overtake HomeAway's booking numbers within the next 3 years.

This quarter Estimize contributors are projecting earnings to rise 5 cents per share from 8 cents in EPS to 13 cents. Earnings of 13 cents per share would leave HomeAway 1 cent shy against the Wall Street consensus.

On the top line the Estimize community is looking for a modest beat. Contributors expect vacation rentals to push HomeAway roughly 1% above the Street's view. Contributing analysts are forecasting revenue of $109.8 million which would reflect a 22% year over year increase. A 22% increase could be a harbinger of a slowdown for HomeAway which had been improving sales by at least 30% in each of the past 3 quarters.  

Boston Beer Co. - Tuesday

Boston Beer Co. (SAM), the brewer of Sam Adams and Angry Orchard hard ciders also reports on Tuesday. Boston Beer has benefitted from being an early adopter of the craft beer movement and has surged on the popularity of its new but skyrocketing cider business.

In the past year Boston Beer has stepped on the gas. Since the start of last year earnings have grown by at least 22% each quarter and revenue has been increasing by a minimum of 25%. 

The Estimize community is setting the bar high this week expecting Boston Beer to beat the Street's consensus by 9 cents per share on the bottom line and $6 million (2.5% ) in revenue. 

Weight Watchers - Thursday

Crain's published an article earlier this month about how Weight Watchers (WTW) has become the most heavily shorted stock. Long story short: dieters are ditching Weight Watchers and investors are piling in to bet against any sort of recovery. At the time of the publication a larger percentage of Weigh Watchers shares had been sold short than any other stock on the NYSE. 

This quarter analysts on Estimize are expecting Weight Watchers to come up short on revenue but top Wall Street's EPS consensus by a few cents per share. Even still 4th quarter earnings are projected to drop dramatically from 54 cents per share to just 11 cents. 

Contributors project that revenue will come in a hair below $336 million, virtually flat compared to last year's tally.

Herbalife - Thursday

International multi-level marketing nutrition company Herbalife (HLF) is scheduled to report 4th quarter earnings Thursday afternoon. Like Weight Watchers, many investors are betting against Herbalife. Last year Herbalife stock lost more than half its value. Hedge fund manager Bill Ackman has been leading a crusade against the company and has accused Herbalife of running an international pyramid scheme. 

Although the stock got crushed last year, 2013 was just as positive of a year as 2014 was negative. A long string of large earnings beats and an investment from Carl Icahn fueled Herbalife's fire two years ago. 

Herablife's winning streak was snapped six months ago when the company failed to live up to expectations in its 2nd quarter of 2014. Herbalife missed on the top and bottom line again last quarter and the stock got punished even further. 

Heading into Thursday's report Estimize contributors share a subdued outlook. The consensus expectation is that 4th quarter earnings will fall from $1.28 last year to $1.22. Revenue growth has decelerated rapidly in the past 6 months from 20% to 4% and is forecast to decrease by 9% this quarter.

If you can't beat 'em…buy 'em out. That's the approach Big Beer is taking in combatting the rise of microbrewing. Anheuser-Busch InBev (BUD) announced last week it would be buying 10 Barrel Brewing Co., a microbrewery based in Bend, Oregon. This follows BUD's move earlier this year to buy Blue Point Brewing Co.

It's easy enough to see BUD's rationale. Americans are drinking less beer than they used to, though they're trading up in the craft beer they do buy. While total beer sales were down 2% last year, craft beer sales rose 17%.

Will this strategy work for Big Beer?

Let me answer that question with a question of my own. Do you remember Killian's Irish Red? I used to love that beer. It was a trendy craft brew about 20 years ago.

You never really see Killian's any more. When drinking independent craft brews became the defining image of hipsterism (well, that and growing a luxuriant beard), Killian's association with Molson Coors (TAP) made it distinctly unhip. The brand has slid into irrelevance.

And then there is my favorite go-to beer: the Spoetzl Brewery's Shiner Bock. In the late 1990s, no self-respecting college boy in Texas would be seen drinking Bud Light. It was Shiner Bock or nothing. 

The popularly of Shiner led to imitations—most notably BUD's Ziegenbock, marketed as “for Texans by Texans.”

Ziegenbock isn't a bad beer. But it's always been seen as a cheap imitation…and that is marketing death when selling an upscale product.

This brings me back to the problem facing Big Beer. Anheuser-Busch InBev, Molson Coors and SABMiller (SBMRY) can compete based on quality and variety. Hiring new brewmasters  and letting them experiment like mad scientists could easily create beers that rival Boston Beer (SAM), Spoetzl and the legions of brewpub startups across America.

The problem is one of marketing and—to a lesser extent—economies of scale. Craft beer has become a luxury good subject to the changing whims of fashion, and brand reputations are fragile. When your brand is associated with the regular working man, it loses its cachet and it's hard to convince the fashionable to pay up for them. And this doesn't just apply to blue-blooded patricians. The bearded hipster wearing “vintage” clothes from a thrift store can't be seen drinking a Bud Lite either. It violates their anti-establishment ethos.

Another issue is economies of scale. The beauty of Big Beer operations is their massive and efficient production and distribution. But this goes completely out the window when you buy a locally-produced microbrew. Mass producing it and selling it nationally—or globally—kills the “buy it local” vibe that made it popular to begin with. But keeping it local neutralizes Big Beer's marketing and distribution power.

Could BUD and the rest of Big Beer take a play out of Warren Buffett's book; buying a company outright but leaving its management in place and maintaining a low profile? Maybe. But it's hard to see regional microbrews having much of an impact on the bottom lines of companies with tens of billions in annual sales.

So, what are investors to do here? From the tone of this article, you might think I was a Big-Beer bear. Nothing could be further from the truth. I'm actually a major long-term bull in Big Beer because of its exposure to emerging markets. As I wrote in July, BUD gets about half its sales in Latin America, while SABMiller and Heineken (HEINY) get a disproportionate amount of their revenues from emerging Africa.

This year, exposure to emerging markets has been a major negative, particularly since the dollar began to aggressively rise late this past summer. But if you believe, as I do, that emerging markets represent the better long-term bet, then Big Beer remains one of best long-term investments to make on any significant pullbacks.

Disclosures: Long HEINY.

Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. Click here to receive his FREE weekly e-letter covering top market insights, trends, and the best stocks and ETFs to profit from today's best global value plays.