Constellation Earnings: Beer Strength Intact on Modelo, but Wine and Spirits Portfolio Remains Weak

We don’t plan any material changes to our $274 fair value estimate after absorbing wide-moat Constellation Brands’ mixed third-quarter fiscal 2024 results. Total sales rose just 1% as healthy beer growth (up 4%) was offset by weakness in the wine and spirits portfolio (down 8%), but adjusted EPS (excluding Canopy investments) still rose 8% thanks to beer margin expansion (up 100 basis points to 38.5%) driven by in-market execution and efficiency gains. We plan to trim our estimates for the small wine and spirits segment (16% and 11% of year-to-date sales and operating profit, respectively), but our 10-year projections for 6% beer sales growth and high-30s operating margins remain intact. Following a 2% pop on the report, shares remain undervalued at a 10% discount.