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Can Constellation Brands' buzz last?

Can Constellation Brands' buzz last?

07/02/2014

By Tomi Kilgore

Constellation Brands latest results have sent the stock toward another all-time high, confirming what investors already knew: the booze business has been booming. But there are signs suggesting the current buzz may start to fade for Constellation investors fairly soon.

Shares of Constellation (STZ) , which owns a host of brands including Robert Mondavi and Manischewitz wines, and Corona Light and Tsingtao beers, had already run up 26% this year through Tuesday, and have more than tripled over the last two years. The stock climbed as much as 7.2% to an all-time high of $94.77 before paring gains, following better-than-expected fiscal first-quarter results and an upbeat full-year outlook. (See earnings story)

Constellation has outperformed its peers by a wide margin. Anheuser-Busch InBev (AHBIY), Brown-Forman (BFB) and Molson Coors Brewing (TAP.NV.T) have all hit all-time highs in the last couple weeks, but their two -year gains -- 44%, 47% and 78%, respectively -- have been more along the lines of the broader market. The S&P 500 has rallied 45% in two years, and closed at an all-time high on Tuesday.

But now, some of Constellation's shorter-term technical momentum indicators have reached overbought extremes seen just prior to previous pullbacks in April and January of this year. And on the longer-term charts, the same indicators have been trending lower this year while the stock has gained, suggesting momentum is fading.

Keep in mind that last quarter, the stock rallied as much as 4.8% intraday after better-than-expected results, before closing down 1%.

And while the company's beer business is still very strong -- first-quarter sales were up 14% from last year -- wine and spirits sales, which represented nearly half of total sales last quarter, haven't been as rosy. They were down 1% because of "lower shipment volume" resulting from distributor inventory destocking.

In the previous two quarters, wines and spirits sales rose just 1% and 3% -- beer sales were up 13% and 21% -- as volume growth was offset by "higher promotional spend." Looks like that higher spend hasn't been working.

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