Constellation Brands STZ stock has crushed the alcoholic beverage market over the last three years, up 24%, against its industry’s 6% average decline. Shares of STZ have also matched the broader industry’s impressive 2019 run, up 28% to blow away the S&P 500’s 18% climb.
Now the question is should investors consider buying shares of Constellation Brands as we head into the release of its second quarter fiscal 2020 earnings results, due out on Thursday, October 3?
Constellation Brands is an alcoholic beverage powerhouse that produces and markets many imported and craft beers from Corona and Ballast Point, along with Kim Crawford wine and SVEDKA Vodka. The firm has been able to outperform its peers, which includes Anheuser Busch Inbev NV BUD, over the last several in part because imports and craft beer have grown, while domestic beers like Budweiser face a slowdown. For instance, Modelo Especial was Constellation’s most significant growth contributor in the portfolio last quarter.
The market has also been seemingly flipped on its head recently by the overnight success of hard seltzer. Luckily, many of the big brands have been able to take part in the massive rise. The Boston Beer Company SAM owns Truly Hard Seltzer, while Anheuser- Busch InBev owns Bon & Viv Spiked Seltzer and Molson Coors TAP owns Henry’s Hard Sparkling Water. And Constellation rolled out a Corona-branded flavored malt beverage that it has positioned as part of the larger non-beer category.
On top of that, Constellation management last summer made a big bet on the growing legal marijuana business. The firm in August 2018 invested $4 billion to take a 38% stake in Canopy Growth CGC, which “continues to be the global leader in total cannabis sales.” Investors should note that the deal provides Constellation warrants to lift its ownership to over 50%.
The investment hasn’t paid off much yet, but as more and more states legalize recreational marijuana use (currently 11 states, D.C. and all of Canada) it could prove to be a big boost. We won’t dive into much more here expect that Canopy is one of the so-called big four, pure-play pot stocks, along with Aurora Cannabis ACB, Tilray TLRY, and Cronos Group CRON. “And while we remain happy with our investment in the cannabis space and its long-term potential, we were not pleased with Canopy's recent reported year-end results,” CEO Bill Newlands said one the company’s conference call last quarter.
“However, we continue to aggressively support Canopy on a more focused, long-term strategy to win markets and form factors that matter, while paving a clear path to profitability."
Outlook & Earnings Trends
Looking ahead, our Zacks Consensus Estimates call for the Constellation’s second-quarter fiscal 2020 revenue to pop 1.4% to reach $2.33 billion. This would mark a slowdown from Q1’s 2% top-line expansion, which did top our quarterly estimates.
Meanwhile, the company’s full-year sales are projected to slip 1.9% to from $8.12 billion in fiscal 2019 to $7.96 billion. It is worth noting, however, that the company’s 2019 sales growth set up a tough comparison period after they soared 7.1%. Constellation’s 2021 sales are then expected to pop 1.1% above our current-year estimate.
At the bottom end, Constellation’s adjusted quarterly earnings are projected to slip 8.7% to $2.62 per share. The company’s fiscal 2020 EPS figure is then expected to fall 9.9%. Peeking further ahead, 2021’s earnings are projected to surge 10.6% higher than our current-year estimate to nearly match 2019’s figure.
STZ has easily topped our quarterly earnings estimates in the trailing four periods by an average of 10.45%. However, the company’s earnings revision trends have moved in the wrong direction recently. In fact, the company’s Q2 consensus estimate has slipped from $2.70 per share 90 days ago to its current $2.62.
Constellation is a Zacks Rank #3 (Hold) at the moment that hasn’t seen its valuation picture become that stretched despite its strong run over the last five years. STZ is trading at 23.2X forward 12-month Zacks earnings estimates, which comes in below its industry’s 24X and its own three-year high of 25.3X
STZ shares are down 5% over the last 12 months, against its industry’s 7% climb. And the beer and wine firm’s stock closed trading Friday at $206, down 10% off its 52-week highs of $228.91 per share. This could give the Constellation shares room to run heading into earnings.
Investors should pay close attention to any and all Canopy updates on the earnings call. Plus, make sure to listen for updates on its projected Gallo Winery deal, which executives expect to close in the second half of calendar 2019. The firm first announced in early April that it would “divest approximately 30 brands from its wine and spirits portfolio principally priced at $11 retail and below, and related facilities located in California, New York and Washington for $1.7 billion.”
Overall, Constellation appears to be a worth considering at the moment given its diverse portfolio, and is likely a safer way to play the growing but extremely volatile marijuana market. Plus, the company pays an annualized dividend of $3.00 per share, for a yield of 1.46%—the 10-year U.S. Treasury currently rests at 1.68%.
With all that said, it is always risky to buy a stock before earnings. Therefore, interested investors might want to wait until after it reports its Q2 2020 financial results on October 3 to decide.
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The Boston Beer Company, Inc. (SAM) : Free Stock Analysis Report
Constellation Brands Inc (STZ) : Free Stock Analysis Report
Molson Coors Brewing Company (TAP) : Free Stock Analysis Report
Anheuser-Busch InBev SA/NV (BUD) : Free Stock Analysis Report
Tilray, Inc. (TLRY) : Free Stock Analysis Report
Canopy Growth Corporation (CGC) : Free Stock Analysis Report
Aurora Cannabis Inc. (ACB) : Free Stock Analysis Report
Cronos Group Inc. (CRON) : Free Stock Analysis Report
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