Constellation Brands Earnings Preview: High Expectations

, the largest wine producer in the world, is scheduled to share its third-quarter fiscal 2014 results Wednesday, January 8, before the opening bell. Investors will be looking for more growth arising for its recently acquired Crown Imports stake from Grupo Modelo, which gave Constellation full control of the production and brand rights to Corona, the most popular imported beer to the United States. They will also be looking for another positive earnings surprise to help push shares above recent resistance.

Analysts on average predict that Constellation will say its revenue for the quarter rose more than 80 percent year-over-year to $1.38 billion. Earnings of $0.91 per share are also in the consensus forecast. That would be up from to a reported profit of $0.63 per share in the same period of last year. The consensus earnings per share (EPS) estimate has ticked up by a penny in the past 60 days. And note that Constellation exceeded consensus EPS estimates in three of the previous four quarters. The second quarter beat was by about nine percent. The company attributed strong second-quarter results to the completion of the acquisition of the Grupo Modelo beer business. "[W]e expect most of our growth for the wine and spirits business to be generated during the second half of the year resulting from the timing of product shipments," said the chief executive officer. The share price rose about three percent following the report. Looking ahead to the current quarter, which included much of the holiday shopping period, the forecast currently calls for strong year-over-year growth of both EPS and revenues. Full-year EPS are expect to be 27 percent higher while sales grew more than 73 percent from the previous year.

Constellation is a global producer and marketer of alcoholic beverages. Among its more than 100 brands are Robert Mondavi, Clos du Bois, Mouton Cadet, Arbor Mist, SVEDKA, Black Velvet, Corona and Tsingtao. It also produces and markets wine-making kits and bulk wine products. This S&P 500 component was founded in 1945, and its headquarters are in Victor, New York. It now has a market capitalization of about $13 billion. Robert S. Sands II has been chief executive officer of the company since July of 2007 and president since December 2002. Competitors include Brown-Forman, which is expected to report marginal earnings and revenue growth for the current quarter, and Diageo, from which analysts expect to see some growth of both EPS and sales for the current fiscal year, which ends in June.

During the three months that ended in November, Constellation's chief financial officer sold more than 80,000 shares and another executive sold 40,000 shares. The company said it would invest more than $20 million in several of its California wineries and vineyards to keep up with demand, and it raised its full-year earnings guidance along with the second-quarter report.

Constellation has a long-term earnings per share growth forecast of more than 13 percent, and its price-to-earnings (P/E) ratio is lower than those of the competitors mentioned above. Its return on equity is more than 53 percent, and the operating margin is greater than the industry average. It offers no dividend. The number of Constellation shares sold short, as of the December 13 settlement date, represents more than three percent of the total float, even after short interest declined more than nine percent from the previous period. It would take more than four days to close out all of the short positions. Half of the 10 analysts surveyed by Thomson/First Call who follow the stock rate it at Strong Buy, and another two of them also recommend buying shares. The analysts' mean price target, or where they expect the stock to go, is almost seven percent higher than the current share price. That would be a new multiyear high. While the share price has risen more than 13 percent in the past 90 days, shares have met resistance near $72 since November. The share price remains above the 50-day and 200-day moving averages. Over the past six months, Constellation has outperformed not only the competitors mentioned above but the broader markets as well.

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