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Constellation Crushes Estimates as Margins Surge

Stock (Symbol)

Constellation Brands (STZ)

Stock Price

$194

Sector
Food & Necessities
Data is as of
August 2, 2017
Expected to Report
Oct 3
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
David SharekConstellation Brands (STZ) just had profit margins surge from  in its beer business rise from 36% to 40% last qtr. Wine margins also surged — from 23% to 30%. Margins were so strong due to lower COGS, better F/X, favorable pricing, and ditching its Canadian wine business. Constellation Brands is the world’s leader in premium wine and the third largest beer company in the US. Constellation 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 STZ 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 — this purchase being the catalyst to propen profits higher, givin STZ more money to buy even more wineries/brewerys. The company also buys back stock and pays $2 in dividends per year. STZ is a hot stock as the company keeps beating the street then upping estimates. Profits are growing more than 20% a year and the stock has a P/E of 24. Things are great with this company, as visits to liquor stores grew 20% YoY from 2015 (source: Foursquare). Pacifico had 20% growth last qtr and will become STZ’s next growth catalyst. It’s STZ’s #3 beer brand, #2 is Modelo and Pacifico is chasing. Overall a very good stock, but the valuation is high by historical standards and estimates show slowing growth ahead (but STZ has been beating).
One Year Chart
Last qtr STZ delivered profit growth of 52% which trounced estimates of 29% as margins rose and taxes fell from 31% to 19%. Sales increased 3% with beer sales rising 8%. Wine sales fell 6% as the company sold off a Canadian winery. Spirit sales rose 14%. Profit Estimates fell this qtr, and now analysts expect just increased and are now 22%-1% (tough comparisons vs a year ago), 16% an 4% growth the next 4 qtrs (this qtr needs time to rise as STZ just whipped estimates last qtr, and that’s the comparison qtr). The P/E of 24 is fair but high historically. The Est. LTG has fallen from 18% to 16% and now 14% the past three qtrs.
Fair Value
Gosh, I owned this stock I’m guessing a decade ago, and sold it when profit growth slowed. I should have kept it on the radar as growth surged in 2013 and I probably would have bought in. Anyway, moving on. Here we are today with STZ sitting at 24x earnings. That’s not high for the growth the company has been delivering, but the P/E much lower in years past and it could pull back some. Right now I feel the stock’s fairly valued, but 2017 profit estimates have increased from $7.22 to $7.52, $7.98 and $8.17 the last 4 qtrs so this Fair Value might be increasing.
Bottom Line
Constellation Brands is really executing well. Smart acquisitions, taking profits to buy other companies, and still having enough to buy back $100 million in stock last qtr and pay a nice qtrly dividend of $0.52. The only issue is the stock has had quite a run and could be in for a time out. STZ ranks 19th in the Growth Portfolio Power Rankings.
Power Rankings
Growth Stock Portfolio

19 of 33

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

N/A

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