Bank of America Raises Price Target On Altria Group And Constellation Brands

Bank of America raised its price target on Altria Group Inc MO and Constellation Brands, Inc. STZ Friday.

Altria Group had its target raised from $51 to $54 and “this target multiple is in line with its current 2015 P/E. We acknowledge that our 18x P/E is above its two-year average, but reflects our belief that MO’s P/E should expand given its positive underlying company/industry trends in traditional cigarettes, reduced litigation risk, and strong commitment to shareholders,” according to analyst Bryan Spillane.

Spillane noted that downside risks include “continued poor price realization, a deterioration in the litigation environment, unfavorable taxation, deeper secular declines in US cigarettes than anticipated, a higher price elasticity of demand than anticipated, and unfavorable FDA regulation, particularly as it relates to menthol. Upside risks to our [price target] are better-than-expected cost-cutting, strong share gains in smokeless and stronger-than-expected net pricing.”

Constellation Brands had its target raised from $97 to $104 as the firm shifted its “valuation out to CY16.” The price target was based on 19.9x the CY16 EPS of $5.24. “This is a 15-20 percent premium to its international brewer peers, which is, in our view, warranted by the higher-than-average EPS growth (led by imported beer) and prospects for improvement in margins and ROIC,” according to the analyst note.

Spillane noted that risks to achieving the price target for STZ “are a category slowdown, trade down in brands or into other alcoholic beverage categories, slower imported beer growth than expected, investor demand for more cyclical stocks and successful integration of the acquisition of Modelo brands.”

Constellation Brands, Inc. recently traded at $92.09, down 0.40 percent.

Altria Group Inc. recently traded at $ 50.32, up 0.22 percent.