Constellation Brands Downgraded To Neutral; Shares Open Lower, Rebound Sharply

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In a report published Tuesday, analysts at SunTrust Robinson Humphrey downgraded
Constellation Brands, Inc.
STZ
from Buy to Neutral. The price target was also reduced from $135 to $125. The stock valuation appears full at present. "We continue to be bullish on STZ's prospects for growth, margin expansion, and free cash flow generation over the next few years. However, with the stock trading at 24x our FY16 and 21x our FY17 EPS estimates, we are more reluctant to recommend new money to the name," the analysts stated. SunTrust Robinson Humphrey expects FY16 to be a transition year for the company's margins. Constellation Brands has reported higher than consensus margins ever since it the Crown acquisition was completed in 2013. The company EPS outperformance in FY15 had been led by the Beer segment and the analysts believe that Constellation Brands has been making "big strides towards its long-term goal of mid-30s EBIT margin for the Beer segment." For FY16, the company has guided to high single digit net sales with 33 percent operating margins for the Beer segment. However, the analysts believe that there is upside to this guidance, the upside is likely to be significantly lower than that witnessed in the past 12 months. "We agree that STZ is one of the best stories in beverages… with its (1) on-trend products (targeting millennial and Hispanic population) which are growing doubles digits with plenty of distribution opportunities (draft, cans), (2) limited FX exposure, (3) improving margins, and (4) strong operating cash flow," the analysts added.
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Posted In: Analyst ColorDowngradesPrice TargetAnalyst RatingsSunTrust Robinson Humphrey
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