Constellation Brands (STZ) is a global manufacturer and marketer of wine, spirits, and beer including Clos du Bois, Ruffino, Robert Mondavi, Kim Crawford and SVEDKA vodka, notes John Staszak, an analyst with Argus Research.

We expect Constellation to emerge from the pandemic in a position of strength as beer shipments remain solid and the company moves past the headwinds created by the sale of certain products to Gallo.

We think that Constellation has done a good job of keeping popular brands like Corona and Modelo in stock during the pandemic. We also expect the company to continue to gain market share as consumers purchase alcoholic beverages for home consumption and restaurants reopen.

On April 7, Constellation posted adjusted fiscal 4Q22 EPS of $2.37, up from $1.82 a year earlier. EPS topped the consensus forecast of $2.09, driven by stronger-than-expected sales of beer, wine, and spirits. The company has now posted above-consensus EPS in 31 of the past 33 quarters.

In FY22, comparable sales increased 2% to $8.8 billion while EPS rose to $10.20 from $9.97 a year earlier. The earnings improvement reflected strong beer sales and higher operating margins.

Management notes that a significant portion of the company’s $2 billion credit line remains available and that maintaining STZ’s investment-grade credit rating is a priority.

In April 2021, the company raised its quarterly dividend by 1.3% to $0.76 per share, or $3.04 annually. The current yield is about 1.3%. Our dividend estimates are $3.60 (reduced from $3.80) for FY23 and $4.00 for FY24.

Reflecting prospects for higher beer sales and positive earnings surprises over the last ten quarters (at times by double digits), we are reaffirming our FY23 EPS estimate of $12.60 and setting an FY24 estimate of $13.90. Both estimates are above consensus and assume high single-digit growth in beer revenue.

STZ is trading at 19.2-times our revised FY23 EPS estimate, near the average of 19.0 for other growing Consumer Staples companies. We believe that the current multiple inadequately reflects the company’s prospects for solid beer sales and market share gains, and that a "buy" rating remains appropriate. Our target price is $290.

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