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Analysts Continue To Like Constellation Brands

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Analysts Continue To Like Constellation Brands

Constellation Brands, Inc. (NYSE: STZ) held a presentation this week with Street analysts to discuss its beer business outlook, which left at least two analysts positive on the outlook.

The Main Takeaways

Constellation Brands' presentation was led by incoming CEO Bill Newlands, Beer President Paul Hetterich among other key executives from the beer business, Bank of America's Bryan Spillane said in a research report. The overall tone from management was "positive with confidence" in its ability to continue growing the beer business and improve the struggling wine segment.

Here are some of the key highlights from the presentation:

  • Corona and Modelo are "umbrella brands" that can support product extensions.
  • The company will invest more on Corona Premier and Familiar.
  • Management continues to focus on the growing alternative beverage alcohol (ABA) space like Corona Refresca.
  • The company is looking at trade up opportunities in sessionable domestic beer.
  • The underserved Hispanic market will be better targeted.

Spillane maintains a Buy rating on Constellation with a $188 price target

Innovation And Expansion

Constellation's presentation showcased its strong innovation pipeline and distribution opportunities, Wells Fargo's Bonnie Herzog said. The beer business's momentum and outlook supports the bullish case for the stock in which investors can gain exposure to the high growth beer business while simultaneously getting a "free call option" on the company's cannabis exposure.

The Street remains mixed on Constellation's outlook, the analyst wrote in a note, and is questioning the company's ability to show a high-single digit volume growth rate in the beer business in the shrinking industry. But management made it clear it is focusing on the high-end beer business market and over time the company should show evidence of growth which will prompt a re-rating of the stock's multiple higher.

On top of a compelling growth story, Herzog said the company's dedication to return $4.5 billion of cash to shareholders over the next three years is an "underappreciated opportunity" to create additional shareholder. The cannabis business remains on track to achieve a revenue run rate of C$1 billion in the next 18 months. Constellation took a big stake in Canopy Growth (NYSE: CGC) last year.

Herzog maintains an Outperform rating on Constellation with a $235 price target.

Beer Margins Likely Peaked

Constellation may be in a position where margins in the beer business likely peaked in the near term if not over the long term, Macquarie Research's Caroline Levy said in a research report.

Management succeeded over the past few years in implementing multiple improvements in the business, but the beer segment now faces new cost pressures. The company could offset higher costs through continued operational improvements, but there may not be any room for margin upside given the already high margins.

Meanwhile, the new year is off to a bit of a rough start with Corona sales suffering from cannibalization from Premier and Familiar, the analyst said. Marketing spend will remain unchanged at 9 percent to 10 percent of sales, but the company is increasing its Premier spend again in 2019 with a new campaign to target the "mature, sophisticated consumer." The low-end wine business continues to be a drag and distributors have no reason to push brands that could be lost in the event management sells its portfolio.

Levy maintains at Neutral with a $162 price target.

Shares traded at $158.79 Thursday afternoon.

Related Links:

BofA Slashes Anheuser Busch Price Target, Casts Doubt On Asian IPO

Analyst: Constellation Worth Buying Despite Political, ESG Risks

Latest Ratings for STZ

DateFirmActionFromTo
Jan 2019Atlantic EquitiesInitiates Coverage OnOverweight
Jan 2019Morgan StanleyMaintainsOverweightOverweight
Jan 2019Wells FargoReiteratesOutperformOutperform

View More Analyst Ratings for STZ
View the Latest Analyst Ratings

Posted-In: alcohol Bank of America BeerAnalyst Color Cannabis Top Stories Markets Analyst Ratings Best of Benzinga

 

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