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Constellation’s Casa Noble’s Looking Good

Stock (Symbol)

Constellation Brands (STZ)

Stock Price

$219

Sector
Food & Necessities
Data is as of
February 19, 2018
Expected to Report
Apr 4
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) continues on its domination of the alcohol industry. It’s a juggernaut that can’t be slowed. The company 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 propel profits higher, given STZ more money to buy even more wineries/brewerys. Lust recently STZ bought a premium whisky line and Florida’s fastest selling beer craft company Funky Buddha. In January Bacardi acquired Paton tequila for $5.1 billion. As Jim Cramer points out, Constellation bought Casa Noble in 2014 for less than $30 million. And Casa Noble is the up-and-coming brand (faster growth rate). Speaking of growth, STZ’s beer business generated 80% of the total U.S. beer growth last qtr, lead by Modelo Especial, Corona, Modelo Chelada and Pacifico. Pacifico is the fastest growing beer brand within the top 40 brands. This is a very well run operation. The company recently bought back 200 million shares, and the board authorized an additional $3 billion in buybacks. That will continue to boost EPS, aka profits. Management also pays shareholders a dividend of over $2 per year. So Constellation has has growing brands, is buying new brands to expand upon, and management uses profits to buyback shares and pay a dividend. And profits have grown more than 20% a year the last five years. Although growth could slow into the high-teens, this stock is nicely prices with a P/E of 23. I see this train moving on, and think the stock is good for growth investors. The only big negative is STZ already pays less than 20% in taxes, so estimates won’t get bumped up much from new tax rates.
One Year Chart
Profits grew just 2% last qtr due to a very profitable qtr a year ago (which was a one-time thing). Sales declined 1% due to the sale of a Canadian wine business. STZ has been beating the street and upping estimates for years now, thus qtrly Estimates of 18%, 9%, 13% and 11% profit growth the next 4 qtrs should be taken with a grain of salt. STZ’s P/E fell from 26 last qtr to 23 this qtr.
Fair Value
My Fair Value is a P/E of 26, but that’s if STZ can grow profits +20% or more. If growth slows into the high-teens, a P/E of 22 would fit better. Annual profit estimates have increased across the board (2017, 2018 and 2019) for the last 4 qtrs. I have to feel that trend will continue. 
Bottom Line
Constellation Brands is a marvel of a company. And with its current brands giving the company enough money to (1) buy new brands (2) pay a dividend (3) buy back stock I don’t think this train can be stopped. But it could slow. If that happens I still don’t see a big downturn in these shares. I think the stock would just base for a year. Constellation Brands is one of my favorite companies. STZ ranks 15th in the Growth Portfolio Power Rankings.
Power Rankings
Growth Stock Portfolio

24 of 39

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

N/A

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