Constellation Brands' Demand Solid, but Near-Term Profit Waylaid by Cost Inflation

We don’t plan to material alter our $267 fair value estimate for wide-moat Constellation Brands after digesting a less sanguine outlook for the firm’s fiscal 2023 second half, despite its second-quarter outperformance. In the quarter, Constellation delivered strong double-digit net sales growth of 12%, which resulted in $2.65 billion in revenue for the quarter, leaving the firm well positioned to hit our $9.2 billion full-year forecast. Constellation’s beer business prowess was evidenced in a 15% revenue lift and depletion growth of 9%. The standout, Modelo Especial, remained the number-one high-end beer and brand share gainer in the U.S. market and shared accolades with its Corona Extra and Pacifico peers as top-10 share gainers (per IRI). New product rollouts including Modelo Oro (light beer) and Corona’s nonalcoholic beverage feed into our optimism for continued product innovation, supporting our 6% average sales growth projection over the next five years.