Morgan Stanley Expects Solid Q4 for Constellation Brands

In a research report published today, Morgan Stanley said Constellation Brands STZ will likely see solid Q4 results when it reports on Thursday. According to Morgan Stanley, “Despite STZ's improving fundamentals, we see limited room for multiple expansion based on our detailed valuation analysis. Using our probability weighted DCF-methodology for STZ's beer contract and peer-multiple for spirits, we estimate that the market is ascribing a 9.6x CY13e EV/EBITDA multiple for STZ's wine business (~67% EBITDA), which appears a bit stretched, in our view, despite the improving fundamental picture that has emerged. Moreover, we expect uncertainty around STZ's beer contract with Modelo to become an increasing area of investor focus as we move closer to the notice provision period for the contract (end of CY13), driving our EW-rating.” Morgan Stanley maintains its Equal-weight rating on Constellation Brands, which closed yesterday at $23.95.