A Cheat Sheet For Constellation Brands' Upcoming Q2

The fundamentals of Constellation Brands, Inc’s STZ beer business remain superior, despite the challenging industry backdrop, while the company’s wine share momentum continues, RBC Capital Markets’ Nik Modi said in a report. He maintained an Outperform rating on the company, with a price target of $181.

“We still see more upside ahead for STZ but for this quarter, we believe buyside expectations are appropriate,” analyst Modi wrote.

Quarter Preview

Modi highlighted the following key points for Q2:

• Beer Volumes: Checks indicate that Constellation Brands’ beer business has continued to gain share and may record 12.5 percent volume growth, including Ballast Point. Beer margin expansion is estimated at 100bps, backed by operating leverage, albeit offset by higher level of brand spending
• Wine Momentum: Wine/spirits may report 5.5 percent revenue growth in the quarter. While Constellation Brands’ premium brands continue to perform, the company’s value brands continue to struggle. “We believe Constellation continues to improve its share trends, albeit within a slowing wine category,” the analyst added. Category margin is estimated at 25.6 percent.
• M&A: Media reports suggest that the company plans to sell its Canadian wine business. Modi estimated pretax proceeds of $1.5-$1.8 billion. He added, “After tax proceeds could go to more bolt-on premium wine assets, buy backs and/or debt pay-down.”

The analyst estimated revenue of $1.93 billion, below the current consensus expectation of $1.96 billion, and EPS of $1.69, above the current consensus forecast of $1.65.

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