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HSBC Upgrades Constellation Brands Following 15% Correction Over Last 3 Months

HSBC Upgrades Constellation Brands Following 15% Correction Over Last 3 Months

Constellation Brands, Inc. (NYSE: STZ) shares have corrected 15 percent from their three-month high, and HSBC’s Carlos Laboy believes the stock is fairly valued after the current pullback.

The analyst upgraded the rating on the company from Reduce to Hold, while raising the price target from $132 to $153.

Changes In Tax Rules

“Suddenly the Mexican beer category doesn’t look like the low-risk, blue skies forever scenario that seemed to have been priced in for much of the past year,” Laboy mentioned, pointing to the potential new taxes on Mexican imports suggested by the White House to fund a wall.

If such taxes were to be imposed, they would be passed on to consumers of Victoria, Modelo Especial and Corona, the analyst pointed out.

“A special US tax on Mexican beers would compress margins for Constellation Brands and create various price gap problems for the Constellation portfolio vis-à-vis craft beers, other imports and domestic US beers, all with long-term growth implications,” Laboy explained.

The import costs for hops and other raw materials would increase due to a devaluing of the peso, which would further weigh on the company’s performance, a scenario that is not yet priced into the stock.

NAFTA Renegotiation

Laboy also expressed concern regarding a renegotiation of the NAFTA. While beer was excluded from the original NAFTA discussion, things have changed, bringing Mexican beer into the picture.

Constellation Brands is unlikely to be able to brew its Mexican beers in the United States without damaging its brands, the analyst added.

Latest Ratings for STZ

Apr 2020CFRAMaintainsHold
Apr 2020MKM PartnersMaintainsBuy
Apr 2020Goldman SachsReinstatesBuy

View More Analyst Ratings for STZ
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