How to invest in millennials' love of craft beer

Published Wed, Sep 21 201611:12 AM EDTUpdated Wed, Sep 28 20169:35 AM EDT

William Blair initiated shares of Boston Beer with an outperform rating on Wednesday, telling investors to get behind the "pioneer in the fast-growing craft beer segment." "Over the past five years, U.S. craft beer sales (at retail) increased at a compound annual rate of 20 percent and reached more than $22 billion. Despite this, craft beer still represents just 12 percent, by volume, of the overall domestic beer market, suggesting ample room for growth," analyst Ryan Sundby wrote in a research note. Sundby believes craft beer has become the drink of choice, particularly among millennials, who desire higher quality beverages with more variety and flavor. "These demand characteristics and industry capabilities underpin a solid secular growth opportunity, in our view," said Sundby, naming Boston Beer the "No. 1 craft beer in the United States." Boston Beer, 1 year Source: FactSet This year, Boston Beer shares have fallen 24 percent, weighed down by increased competition. Sundby said the drop presents an attractive opportunity to pick up the shares at a discount, given the company's long-term growth expectations, strong product portfolio and operating capabilities. "We project Boston Beer can increase earnings at a compound annual rate approaching the midteens over the long term," he said, noting that the stock trades at a "reasonable" multiple of 10 times enterprise value-to- EBITDA . "Looking forward, opportunities exist for the company to expand distribution, both by channel and geography; to grow household penetration and usage frequency via creative marketing and packaging formats; and to develop and introduce new products, including new styles featured by the company (such as IPAs) as well as novel items (including spiked sparkling water)," he said. Although not central to his investment thesis, Sundby said he wouldn't rule out the possibility for a larger player to step in and potentially acquire the company. In the next 12 months, analysts on Wall Street predict shares of Boston Beer could trade as high as $165, implying a gain of 7 percent from Tuesday's closing price. William Blair did not issue a price target for the stock. Boston Beer did not respond to CNBC's request for comment. —CNBC's Michael Bloom contributed to this story

In 2016, small and independent craft brewers were responsible for more than 456,373 jobs in the US.

Matthew J. Lee | The Boston Globe | Getty Images

William Blair initiated shares of Boston Beer with an outperform rating on Wednesday, telling investors to get behind the "pioneer in the fast-growing craft beer segment."

"Over the past five years, U.S. craft beer sales (at retail) increased at a compound annual rate of 20 percent and reached more than $22 billion. Despite this, craft beer still represents just 12 percent, by volume, of the overall domestic beer market, suggesting ample room for growth," analyst Ryan Sundby wrote in a research note.

Sundby believes craft beer has become the drink of choice, particularly among millennials, who desire higher quality beverages with more variety and flavor.

"These demand characteristics and industry capabilities underpin a solid secular growth opportunity, in our view," said Sundby, naming Boston Beer the "No. 1 craft beer in the United States."