Since the election, shares of Constellation Brands, Inc. STZ have lost 8 percent, underperforming the S&P 500 by 13 percent. However, the company may still post robust November quarter results, with in-line EPS and a revenue beat, RBC Capital Markets’ Nik Modi said in a report. He maintained an Outperform rating on the company, with a price target of $183.
Modi mentioned the four reasons for pressure on Constellation Brands’ stock since the election:
- Concerns related to potential EPS risk from a proposed Border Adjustment Tax by the Trump administration.
- Excise tax concerns on Mexican imports under the Trump administration.
- The impact of deportation.
- A general market trend of selling winners and buying laggards, especially into the year's end.
Strong November Quarter
Modi expects Constellation Brands to beat the revenue projections due to the performance of its beer business.
“For Wine, field work suggests Constellation Brand’s depletion momentum continues (especially for its focus/recently acquired brands). However, recall that STZ over-shipped in wine last quarter and the company is expecting depletions to outpace shipments this quarter,” the analyst wrote.
Price mix could result in an upside surprise. Moreover, share repurchases may contribute to the EPS results, with the company having announced a new share buyback authorization of $1 billion in mid-November and is likely to have actively bought back stock during the selloff post-election, Modi added.
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