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Constellation Brands Inc Class A STZ

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Wide-Moat Constellation Brands' Beer Sales Remain Robust; Shares Still at a Discount

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

We don’t plan to make any material change to our $252 fair value estimate for wide-moat Constellation Brands. We see the shares as undervalued, trading at a 16% discount to our intrinsic valuation. Constellation released mixed results for its August-ended second quarter, missing on EPS ($2.38 actual versus $2.78 estimated) and beating on revenue ($2.37 billion actual versus $2.30 billion estimated) compared with FactSet consensus estimates. Sales bested our forecast and grew at a 5% organic rate, and the adjusted operating margin of 30.8% keeps the firm on track to achieve our full-year forecast of 28.5%. Constellation continued to see impressive growth in its beer segment (up 14%), with Modelo Especial remaining the marquee name; it's now the second-largest U.S. beer brand by total sales. The wine and spirits segment was able to produce organic growth of 15% after adjusting for recent divestitures. With the first half of fiscal 2022 complete, management was confident enough to modestly raise 2022 EPS guidance to $10.15-$10.45 (a $0.15 lift on both ends), which falls in line with our forecast of $10.23.

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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 is in transition, and it has divested 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 38% of Canopy Growth, a leading provider of medicinal and recreational 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 Aug 31, 2021
Fiscal Year End Feb 28, 2022
Stock Type Classic Growth
Employees 9,300