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Mexican Beer Continues to Shine for Constellation

The earnings power of brands like Corona and Modelo along with catalysts on the horizon make this wide-moat firm an underappreciated gem in the brewing industry.

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Nicholas Johnson: We view Constellation Brands, which owns the U.S. rights to Mexican beer trademarks like Corona and Modelo, as an underappreciated gem within the brewing industry. At its core, our job really is to assess two things: a company's competitive position and the intrinsic value of its stock. From our vantage point, Constellation looks stellar in both regards.

As it relates to competitive position, we recently raised the firm's moat rating to wide from narrow. There are common threads that typically run through the fabric of moat-worthy consumer-packaged goods companies. These include broadly resonant brands and massive distribution networks. Constellation's story includes not only these traits, but also a powerful demographic tailwind. Its core consumer base skews towards Hispanics, a sizable demographic whose primacy will only increase over the coming years. We find it fairly intuitive that Hispanics place a premium on Mexican beer, as it speaks in part to a shared culture and heritage, and in our view, these dynamics are at the heart of Constellation's superb operating profile, boasting best-of-breed margins and lower advertising spending than peers.

Nicholas Johnson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.