Wide-Moat Constellation Brands Continues to Show Strength in Beer Business; Shares Fairly Valued

We plan to raise our $258 fair value estimate for wide-moat Constellation Brands by a low-single-digit percentage after integrating its third-quarter performance into our model. Overall, results tracked in line with our full-year expectations as third-quarter sales of $2.3 billion place the company firmly on track to achieve our full-year sales estimate of $8.7 billion. Management increased its full-year EPS guidance to $10.50-$10.65 (from $10.15-$10.45), just modestly above our 2022 EPS estimate of $10.48. Constellation continued to see outperformance from core beer brands with depletion growth of 8% in the quarter. Modelo now holds the largest share of any brand in the high-end beer space after gaining the most share in the quarter. This underscores not only the strong customer base that already exists but also the continued growth opportunities for imports like Modelo and Corona with proper innovation. Despite persistent pressures from increasing labor and raw material costs, the impact on gross margins for beer (down 130 basis points to 41.3%) has partially been offset by price hikes slightly higher than the typical 1%-2%, which consumers have accepted.