Constellation Brands Inc (STZ) Buy or Sell Stock Guide
May 27, 2018
The analysis below may be helpful to you if you have any of the following questions about STZ stock: •
Is STZ a buy or a sell?
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Should I sell or hold STZ stock today?
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Is STZ a good buy / a good investment?
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What are STZ analyst opinions, recommendations, ratings?
Here are STZ stock buy reasons/signals: 1. The firm’s venture capital arm, Constellation Ventures, could fuel further growth from equity investments and highlight potential acquisition opportunities. 2. Changing demographics in the U.S., including a growing population of Hispanic and millennial customers, should elevate demand for Constellation’s beer and wine brands. 3. Constellation Brands’ divestitures of value-priced wine brands for $765 million in cash proceeds will allow for more focused investments in its premium brands. 4. Constellation Brands has been significantly gaining from strength in beer business over the years. In third-quarter fiscal 2018, sales at the beer business improved 7.8%, driven by 5.9% rise in shipment volumes and depletions growth of 9.1%. The beer business also gained from strong portfolio performance and share gains for the Modelo brand family, with depletions growth of 17%. 5. Constellation Brands’ consistent focus on brand building and its initiatives to include new products are the key revenue drivers for the stock. Owing to its strategic endeavors, the company is witnessing increasing market share, especially in the U.S. beer category. Notably, the company was the highest growth contributor in the U.S. beer category and generated 80% of the total U.S. beer category growth. 6. Constellation Brands focuses on expanding operations directed toward achieving business growth. In the beer segment, the company’s expansion plans are anchored by the recent acquisition of the Funky Buddha Brewery, a leading craft brewery in Florida; the introduction of Fathom IPA by Ballast Point Brewery; the Obregon Brewery acquisition, which will bolster its high-end Mexican beer portfolio; the faster-than-expected 25 million hectares expansion of its Nava brewery in Mexico; and the construction of the East Coast brewery in Belleville, VA. Moreover, Constellation Brands is on track with its glass plant expansion, which is expected to cater to more than 50% of the glass demand. 7. Constellation Brands has been consistently generating strong cash flows from its beer as well as wine and spirits businesses, which is evident from cash from operations of $1,468.4 million, and free cash flows of $762.8 million generated in nine months of fiscal 2018. Capitalizing on its financial flexibility, the company has been making regular dividend payments. Incidentally, on January 4, the company announced quarterly dividend of 52 cents per share for Class A and 47 cents for Class B shares.
8. STZ profitability is improving. The YoY profit margin change was 4.83pp.
9. STZ forward dividend yield is 1.30%, higher than the industry (0.61%) and sector (0.95%) forward dividend yields.
10. STZ average analyst rating is Buy.
11. STZ average analyst price target ($244.65) is above its current price ($220.39).
Here are STZ stock sell reasons/signals: 1. Customer loyalty for wine brands is unlikely to reach the same levels enjoyed by beer and spirits, given the incredibly fragmented nature of the category, as the top three producers account for less than 50% of the total segment. 2. A higher excise tax rate could weigh on profitability if the firm were not able to pass these costs to consumers via price increases. 3. An increasing number of craft breweries and brewpubs (over 5,000 in the U.S., which have over 12% volume share) could weigh on sales of Ballast Point if its offering isn’t on point with consumers. 4. The company faces intense competition from other well-established players in the industry, including Beam Inc., Brown-Forman Corporation – B, Diageo plc, and Pernod Ricard SA. Moreover, Constellation Brands encounters competition from local and regional players in respective countries. This may affect the company’s future operating performance. 5. The prevalent sluggishness in the global economy, along with macroeconomic headwinds such as a rise in fuel and energy costs, unemployment levels and high household debts may negatively affect the discretionary spending of consumers, and consequently hamper the company’s growth and profitability. 6. Distilled spirits are subject to excise tax in various countries. Rising fiscal pressure in the U.S., European and many emerging markets may increase the risk of a potential excise tax on spirits by governments of these countries. Any excise tax increase in the future can have an adverse effect on Constellation Brands’ financial performance. 7. STZ Price/Sales ratio is 5.92, and it’s high compared to its industry peers’ P/S ratios.
8. STZ short interest (days to cover the shorts) ratio is 4.38. The stock garners more short interest than the average industry, sector or S&P 500 stock.
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