Beverage Demand Holding Firm at Wide-Moat Constellation Brands; Shares Undervalued

We don’t expect any material change to our $269 per share fair value estimate for wide-moat Constellation Brands after dissecting its first-quarter performance, and view shares as attractive. Net sales spiked 17%, to $2.4 billion, tracking in line with our full-year sales forecast of $9.4 billion. Beer sales continued to be a driver of consistent revenue growth, resulting in a 21% uptick in segment sales, coupled with a sound average depletion rate of 8.7%. Modelo maintained segment leadership in the U.S. general and premium beer categories. The brand outshone competitors in brand share gains and posted 15% and 39% depletion growth for its Especial and Chelada labels, respectively. The wine and spirit segment also recorded a 2% net sales increase and received recognition for gains in category share, following the company’s divestment from select nonpremium products. Despite the strong sales, raw material, labor, and transportation inflationary pressures led beer’s operating margin to contract 260 basis points to 40.2% and the wine and spirits margin to slide 330 basis points to 19.6%.