Questions about whether beer and alcohol consumption would remain steady during a recession have risen recently as worries about an imminent recession have grown.
Analyst Gianni Di Poce thinks the fear helps the sector, saying “alcohol stocks tend to perform well when the risk of a recession rises,” in his weekly “Benzinga Pro Insider Report.”
The analyst is focused on Modelo and Corona maker, Constellation Brands, Inc. STZ, and expects it to deliver a 28% return to investors if it breaks out of its saucer pattern.
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“At a technical level, STZ is trying to break out from a saucer pattern,” Di Poce wrote. “It’s pressing up against resistance, and if it breaks, a big move higher could follow.”
The call: “I am bullish on STZ so long as the stock remains above $228.00-$230.00,” the analyst said. “The upside target is $325.00-$328.00.”
Despite the country's widespread drought, the company is on pace to grow its operations in Mexico and has been able to gain some assistance from the Mexican government to maintain operations.
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Shareholders recently approved an overhaul to the company’s capital structure. It eliminated its class B common stock at a 26.5% premium for investors, helping to streamline key management decisions to lead to a new period of growth.
“Its new premiumization business strategy seems to be working, as its wine and spirits end of the business saw sales rise 2% in Q1,” the analyst said. “Net sales rose 5%. STZ also saw significant growth from its booming hard seltzer business.”
In fiscal year 2022, the company’s revenue was over $8.8 billion, though it still lost $40.4 million. “This may have been exacerbated by supply chain issues,” Di Poce opined. Free quarterly cash flow was $1.63 billion — but it has a high valuation. P/E is 39.12, and price-to-sales is 5.49 with an EV to EBITDA at 24.02.
Constellation Brands announced in June that it is working on a deal to convert the notes it lent to Canopy Growth Corp CGC into equity, in turn strengthening both companies' balance sheets.
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