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How Will Mexican Tariffs Affect Constellation Brands?

Stock (Symbol)

Constellation Brands (STZ)

Stock Price

$149

Sector
Food & Necessities
Data is as of
January 28, 2017
Expected to Report
Apr 4 – 10
Company Description
constellationbrandsConstellation Brands, Inc. is an international beverage alcohol company. The Company is a producer and marketer of beer and wine the United States and Canada. Its segments include Beer, Wine and Spirits, and Corporate Operations and Other. It is a multi-category supplier (beer, wine and spirits) of beverage alcohol in the United States. It sells a number of brands in the import and craft beer categories, including Corona Extra, Corona Light, Modelo Especial, Ballast Point and others. It is a producer and marketer of wine, and sells a number of wine brands across various categories, including table wine, sparkling wine and dessert wine, and across all price points, such as popular, premium and luxury categories. Some of its wine and spirits brands sold in the United States include Black Velvet Canadian Whisky, SVEDKA Vodka, Meiomi, Robert Mondavi, Wild Horse, among others. Source: Thomson Financial
Sharek’s Take
David SharekConstellation Brands, the world’s leader in premium wine and the third largest beer company in the US, could come under tarrif pressure as it produces Corona and Modelo in Mexico and a Trump tariff could put a tax on these imports. As of February 2016, 55% of STZ’s sales were beer with 45% wine, and although the company doesn’t break down what percentage of the beer is Mexican, my guess is almost all of it. The company was founded in 1945 as Canandaigua Industries, and originally sold bulk wine by the barrels. Over the years the company introduced of new brands such as Richard’s Wild Irish Rose wine in 1954, J. Roget Champagne in 1979, Sun Country Wine Coolers in 1984, and Arbor Mist “wine with fruit” in 1998. Acquisitions have played the leading role in company growth. In 1993 it acquired Barton which came with the Peroni & St. Pauli Girl beer brands. The company changed its name to Constellation Brands in 2000 then in 2004 acquired Robert Mondavi for $1 billion followed by SVENDA vodka in 2007. STZ’s biggest acquisition was in 2013 when it paid $4.75 billion for Corona, Pacifico, Modelo & Tsingtao from Anheuser-Busch InBev. One good thing about the import tariffs is STZ didn’t move jobs from the US. Instead it bought a Mexican business, so perhaps our government won’t target it. Constellation can also move some costs from Mexico to the U.S. to offset the tax. In the end a tariff could cause Constellation to raise beer prices 10%. I want to buy STZ as it’s one of the best growth stocks around, and am looking to get in at a good price. The stock has gone from $20 to $164 (today’s quote) since 2002 and I don’t want to buy high. My Fair Value for 2017 is $158. I have STZ at the top of my radar, and would like to get in around $135.
One Year Chart
Note: these charts and tables were done on 1/28 when STZ was $149. Today, it’s $164. Last qtr was a monster for profit growth. Profits jumped 38% overall and blew past the 20% analyst estimate as sales rose 10%. Annual Profit Estimates for this year have jumped the last 3 qtrs from $6.30 to $6.45 and now $6.65. Profit Estimates for the next 4 qtrs are 15%, 22%, 21% and -4% (this -4% qtr will likely get upped as its compared to last qtr which was a monster). The P/E of 20 is fair for this stock considering the Est. LTG is 18% per year.
Fair Value
Constellation has a fiscal year end of February 28th, and with one qtr to go I’m calculating my P/E in next year’s estimates (that gets me to 20). I feel the stock is worth 21x earnings, which leaves upside muted to this year’s Fair Value. But keep in mind STZ has been upping estimates.
Bottom Line
Constellation Brands has had quite a rin the past five years, thus I am hesitant to get in along the top. Earlier in the decade the P/E got down to the single digits, and although I don’t think that will happen again anytime soon, perhaps the stock could fall to 18x earnings to let me in. That would be $135 a share. I sense a market correction coming and I would like to get STZ for the Growth Portfolio around $135 if I can.
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