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Constellation Brands is a Premium Spirit

Stock (Symbol)

Constellation Brands (STZ)

Stock Price

$164

Sector
Food & Necessities
Data is as of
November 3, 2016
Expected to Report
Jan 5 – 9
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, has been riding high the past four years on the backs of many beer & wine acquisitions. 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 Robert Mondavi for $1 billion followed by SVEDKA 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. This company is firing on all cylinders. My issue is the ten-year chart shows the stock’s shot up from $25 to $164 in less than five years. The P/E has also doubled within that time, and 25x earnings is rich for a spirits company. I have STZ on my radar and my goal is to buy if it falls to $142.
One Year Chart
stz_2016_q4Last qtr Constellation delivered profit growth of 13% on 17% sales growth, which was helped by the acquisitions of Meiomi, Ballast Point, and The Prisoner wine brands. STZ was expected to have just 6% profit growth and beat the street by a good margin. Qtrly profit growth estimates are 20%, 20%, 17% and 14%. I really like the fact Annual Profit Estimates have increased four straight qtrs. 2016’s have gone up from $6.11 to $6.45 during that time and 2017’s from $6.91 to $7.22.
Fair Value
stz_2016_q4_phMy Fair Value on STZ continues to be 22x earnings, which is $142 a share. This is the time of year I normally look ahead to 2017 earnings estimates when calculating my P/E. But Constellation has a February fiscal year end which is 2 qtrs away, so I’ll wait until next qtr before looking ahead. My 2017 Fair Value is $159 which is still higher than where the stock is today.
Bottom Line
stz_2016_q4_10yrConstellation Brands’ ten-year chart is the main reason I am reluctant to invest in the stock at this time. The angle on the chart is so high  — without a significant correction — that a little pullback could lead to a lot of sellers. I am waiting for a correction to buy STZ. In the meantime this continues to be one of THE premier growth stocks in the stock market and additional acquisitions would continue to push up profit estimates. 
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