Constellation: A Star in Brewing

05/18/2016 8:00 am EST


Our latest focus stock – with our strongest five-star buy rating -- is a leading international producer and marketer of alcoholic beverages, with a broad portfolio of wine, imported beer, and distilled spirits brands, explains S&P global equity analyst Joseph Agnese in Standard & Poor’s Marketscope.

Our strong buy recommendation for Constellation Brands (STZ) reflects our view of significant earnings growth we expect will be achieved from market share gains from its Corona and Modelo brand beer businesses in the US.

We expect the company’s beer brands to outperform the overall beer industry, with volumes growing in the mid single digits percentage range, supported by increased demands from Hispanic Americans and millennials.

The company’s acquisition of the 50% interest in Crown Imports it did not already own gave Constellation Brands full independent control to import, market and sell Corona beer brands and its other Mexican beer brands (Modelo Especial, Pacifico, Negra Modelo, and Victoria) in the US.

The transaction, completed in June 2013, made Constellation Brands the third largest brewer and seller of beer for the US market.

Constellation Brands also sells 16 of the top 100 table wine brands in the US and six of the top 25 table wine brands in Canada.

The company’s best-known wine and spirits brands include Robert Mondavi, SVEDKA, Black Box, Rex Goliath, Clos du Bois, Ruffino, Estancia, Mark West, Kim Crawford, and Nobilo.

A key driver of organic growth is new product innovation. The company has been introducing flavor extensions under its spirits brands and introducing varietal line extensions behind some of its wine focus brands.

Driven by strong demand for its beer brands, we estimate sales will grow about 12% in fiscal 2017, following estimated growth of 8.6% in fiscal 2016.

Longer term, we expect margins to continue to widen as the company completes beer production capacity expansions at its Mexican plant.

We see valuation benefiting from expected strong market share gains and a growing dividend. The stock earns our top 5-star buy rating.

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By Joseph Agnese Analyst at Standard & Poor’s Marketscope

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