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In a report published Tuesday, RBC Capital Markets analysts maintained a Top Pick rating on Constellation Brands, Inc (NYSE: STZ), with a price target of $130.

The analysts expect the company to report its February quarter results in-line with consensus. Constellation Brands is likely to have generated 7 percent beer volume growth in the quarter, marking a decline from the 14 percent growth figure reported for the previous quarter. "We also estimate distributor depletions for beer to be in line with shipments," the report said.

The beer operating margins may contract 50 bps to 33% on account of increased spending, while the company may record 3 percent wine volume growth with wine/spirits margin remaining flat y/y at 23.9%.

Constellation Brands is to provide guidance for FY16. "We expect management to provide initial guidance of $4.70–4.85, which would bracket the consensus expectation ($4.82)," the analysts said.

"Importantly, we expect upward revisions as the year progresses based on upside to beer volumes (8% vs. mid-single-digit guidance), beer margins (mainly based on higher beer volume), and margin expansion in wine (which consensus does not seem to be factoring in)," the analysts wrote.

The company is widely expected to announce the commencement of dividend payouts. The analysts believe "an initial payout of 30% is reasonable (which would imply a 1.5% yield), with the expectation for the payout to increase over time."

"Based on perspective from more than 30 Constellation Brands distributors, we remain optimistic about STZ's near-term and long-term prospects in beer," the report added.

Latest Ratings for STZ

Oct 2017CitigroupMaintainsNeutral
Oct 2017Morgan StanleyMaintainsOverweight
Oct 2017Stifel NicolausMaintainsBuy

View More Analyst Ratings for STZ
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Posted-In: RBC Capital MarketsAnalyst Color Reiteration Analyst Ratings


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