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.