Goldman On Constellation Brands Following Q4 Results: 'The Best Is Still To Come'

Commenting on the strong fourth-quarter results of Constellation Brands, Inc. STZ, Goldman Sachs said "the best is yet to come."

On Wednesday, Constellation Brands said it earned $1.19 per share in the fourth quarter on revenue of $1.543 billion. Looking forward to the full year fiscal 2017, the beer maker expects to earn $6.05 to $6.35 per share and record free cash flow of $250 million to $350 million. Post the results, the stock hit a new 52-week high of $160.35.

"STZ's FY4Q16 EPS of $1.19 beat our above-consensus estimate of $1.16. FY17 guidance of $6.05-$6.35 also came in better vs consensus of $6.11," analyst Judy Hong wrote in a note to clients.

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"We remain Buyers of STZ on its high-growth premium alcohol positioning, strong FY17 growth outlook, and improved capital allocation potential – We expect another strong year from beer business in FY17 with 17 percent sales growth and 20 percent operating profit growth," Hong noted.

The analyst, who raised the price target by $10 to $180, said Constellation Brands is increasing cash return to shareholders including the 29 percent dividend hike and potential for additional $1 billion of cash to be returned to shareholders in FY17.

Improving capital allocation potential may be less appreciated by the market, said Hong who also increased her FY17 EPS estimate to $6.37 from $6.30, reflecting the fourth quarter beat and a lower tax rate.

The analyst, however cut her FY18 EPS estimate to $7.10 from $7.23, driven by a higher share count, as the recent increase in Constellation Brands' stock price drives a more modest benefit from share buyback.

Shares of Constellation Brands closed Wednesday's regular trading session at $160.34 up 5.93 percent.