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.