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Constellation Brands Inc STZ

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Morningstar’s Analysis

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Market May Be Missing Forest for the Trees With Constellation Brands Yet Again; Shares Getting Cheap

Analyst Note

| Nicholas Johnson, CFA |

A raft of Street bulls emerged heading into wide-moat Constellation Brands’ fourth-quarter earnings, as a confluence of developments--including the resumption of unencumbered production in Mexico and the closure of its wine divestiture--improved the near-term commercial backdrop for the business. With the more constructive narrative, however, market expectations may have overextended, as shares were down 5% despite solid results (ahead on revenue and profit relative to FactSet consensus). This was ostensibly due to below-consensus fiscal 2022 EPS guidance which, beyond being myopic, is misguided in our view. Constellation’s convoluted investment in Canopy makes its EPS numbers particularly susceptible to accounting quirks and timing and thus are not particularly reflective of economic reality. We plan to raise our fair value estimate to $250 from $240 to reflect time value as well as near-term puts and takes in the fundamentals. Ultimately, the health of the business remains unassailable in our view, and while the discount in the shares isn’t glaring, we think this is a stock worth owning at current levels.

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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
New York, NY, 14564
T +1 585 678-7100
Sector Consumer Defensive
Industry Beverages - Wineries & Distilleries
Most Recent Earnings Feb 28, 2021
Fiscal Year End Mar 1, 2021
Stock Type Classic Growth
Employees 9,300