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Constellation Brands Inc A STZ

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Morningstar’s Analysis

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Economic Moat




Quality of Constellation Franchises Shines Amid Pandemic; Stock Outperforming, With Room to Run

Nicholas Johnson Equity Analyst

Analyst Note

| Nicholas Johnson |

Heading into wide-moat Constellation Brands’ fiscal first-quarter earnings print, management tried to manage expectations. It harped on the fact that retail sales data showing 20% growth for its brands was a misnomer (as it skews to certain channels), and also admitted that disruptions to production in Mexico would impact shipments. With the bar set low, we think investors were heartened by the results (in line sales and upside profits relative to CapIQ consensus) as well as leadership’s market commentary. The firm remains beleaguered by both micro and macro issues, but we remain sanguine on its ability to navigate the environment and plan to raise our fair value estimate to $220 from $215 (largely reflecting the time value of money). Shares have rebounded nicely from the egregiously cheap levels of early April, outperforming the Morningstar U.S. Market index by 500 basis points. Nevertheless, ample upside remains in our view.

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Company Profile

Business Description

Constellation Brands is the largest multi-category alcohol supplier in the U.S. The business is anchored by a portfolio of Mexican beer trademarks, including Corona and Modelo, for which it acquired exclusive and perpetual U.S. ownership from AB InBev. The latter had to divest these rights due to antitrust mandates as it consummated its 2013 acquisition of dominant Mexican brewer, Grupo Modelo. Constellation’s wine/spirits business has been in flux, and it is currently divesting several lower-margin assets, including myriad wine brands and its Ballast Point craft beer brand. The firm imports most products after manufacturing them abroad, going to market through independent wholesalers. It owns 37% of Canopy Growth, a leading provider of medicinal and recreationally legal cannabis products.

207 High Point Drive, Building 100
Victor, NY, 14564
T +1 585 678-7100
Sector Consumer Defensive
Industry Beverages - Wineries & Distilleries
Most Recent Earnings May 31, 2020
Fiscal Year End Mar 1, 2021
Stock Type Classic Growth
Employees 9,000