Stock (Symbol)

Constellation Brands (STZ)

Stock Price

$163

Sector

Food & Necessities

Data is as of

July 28, 2016

Expected to Report

Oct 5 – 10

Company Description

Constellation 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

Constellation Brands is the world’s leader in premium wine and the third largest beer company in the US. The company was founded in 1945 as Canandaigua Industries, and originally sold bulk wine by the barrels. Over the years the company grew via introductions 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, but acquisitions have played the leading role in company growth. In 1993 it acquired Barton which came with the Corona, Peroni, St. Pauli Girl & Tsingtao beer brands. The company changed its name to Constellation Brands in 2000 then in 2004 acquired Robart 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 & Modelo from Anheuser-Busch InBev, and this move spearheaded a new era of profit growth and stock growth. Imported and craft beers are en vogue with U.S. customers, and that’s fueling STZ. Analyst have an estimated long-term growth rate of 17% on STZ, in addition to a yield of 1%, but with a P/E of 26 STZ’s valuation is high, I feel a P/E of 22 would be more fitting. I have STZ on my radar and would like to buy on a dip as I feel the stock is overpriced right now.

One Year Chart

Last qtr STZ had 22% profit growth on 15% sales growth, which was partially helped by the acquisition of Meimi wine. Including acquisitions beer sales rose 20% last qtr, wine sales 9%. Organic growth was 10% for beer and 2% for wine and spirits. Qtrly profit growth estimates are 6%, 21%, 18% and 17% — which is implies solid growth should continue. I’m just concerned the P/E is too high and a stock market correction could bring these shares down some. Also, the amount STZ has beaten the street by has come down from 24 cents to 12 cents, 5 cents and 1 cent the last 4 qtrs.

Fair Value

My Fair Value on STZ is 22x earnings, which is a $139 share price. At this point I’m so desperate to pick up the stock I would buy in at $139. But I may not get my wish as this company is clicking on all cylinders right now and investors are aware of this.

Bottom Line

Constellation Brands is on a new growth trajectory. I feel this is a solid growth stock with a recipe of success that includes creating new brands and acquiring successful ones. Imported beer, craft beer and high-end liquor are all providing wind to Constellation’s sails. I expect the acquisitions to continue and that should push profits up even further than what’s currently projected. But right now the stock is a little high, thus I am waiting for a correction to take a position. STZ is on the radar for the Growth Portfolio.