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3 Reasons Why Constellation Brands (STZ) Seeks Your Attention

Constellation Brands, Inc. STZ has emerged as a strong contender in the beverages – alcohol space, thanks to its spectacular earnings history, sound fundamentals and long-term EPS growth rate of 18.2%. So, let’s take a closer look at the factors that have been driving this New York-based company.  

Superb Earnings History & Outlook Indicate Solid Prospects

Constellation Brands’ bottom line has outperformed the Zacks Consensus Estimate by an average of 11.7% in the trailing four quarters. In first-quarter fiscal 2018, the company marked its 11th consecutive positive earnings surprise and 16th straight quarter of year-over-year improvement. Results benefited from Constellation Brands’ efforts to drive demand for its impressive brands. Also, results were backed by contributions from acquisitions along with continued strength in the company’s beer business in particular. Moreover, lower cost of goods sold, improved pricing and volumes boosted margins in the quarter. Notably, the company has delivered gross and operating margin growth in the trailing four quarters.

These factors, along with confidence in its beer business encouraged management to raise its earnings view for fiscal 2018, clearly underscoring its solid prospects. The company now envisions adjusted earnings guidance in a range of $7.90–$8.10 per share, compared with its previous guidance range of $7.70–$8.00.

Strong Beer Business Remains a Growth Driver

As mentioned above, Constellation Brands has been gaining immensely from its beer business. Notably, the company was the highest growth contributor in the U.S. beer category for the fourth straight year, in fiscal 2017. In the last reported quarter, sales at this segment improved 8%, thanks to higher volumes and favorable pricing. Further, beer sales were backed by the company’s solid brands which witnessed depletions of nearly 12%.  Apart from this, Constellation Brands is focused on expanding in the craft beer space, which has become a solid growth avenue in the beer space. In this regard, management expects solid results from its Ballast Point craft beer brand, which is currently placed among the top 20 craft brands nationwide. Apart from Constellation Brands, other industry players like Anheuser-Busch InBev SA/NV BUD, The Boston Beer Company Inc. SAM and Molson Coors Brewing Company TAP have also made attempts to grow in the craft beer space.

Coming back to Constellation Brands, the company raised its fiscal 2018 operating income target for its beer segment, now anticipating it to grow 13–15%, compared with the prior guidance of 11–13%.

Robust Brands & Focus on Buyouts Bodes Well

Constellation Brands has a formidable portfolio of well-known brands and is the largest wine company in the world. The company remains focused on expanding operations directed toward achieving business growth. Incidentally, last week, the company announced the acquisition of Funky Buddha Brewery, a leading craft brewery in Florida. This move is aimed at strengthening its position in the high-end beer segment in the U.S. The company’s buyout of Obregon Brewery to bolster its high-end Mexican beer portfolio, is another evidence of its focus on achieving growth via acquisitions. Moving to its spirits and wines business, Constellation Brands acquired America’s highest rated Schrader Cellars in June 2017 to enhance this portfolio. Moreover, in fiscal 2017, the company acquired and integrated High West Distillery, Charles Smith Wines and The Prisoner Wine Company brands, which marked its entry in the premium craft whiskey space.

Well, we believe that these factors, along with healthy cash flows and shareholder-friendly moves are likely to help Constellation Brands maintain its spot in investors’ portfolio.

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Constellation Brands Inc (STZ): Free Stock Analysis Report
 
Molson Coors Brewing Company (TAP): Free Stock Analysis Report
 
Anheuser-Busch Inbev SA (BUD): Free Stock Analysis Report
 
Boston Beer Company, Inc. (The) (SAM): Free Stock Analysis Report
 
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