Stock Analysis & Ideas

Constellation Brands: A Risky or Rewarding Stock?

To boost competitiveness among domestic players, the Joe Biden government prefers taking strict actions to prevent consolidations of big players in the beer, wine, and spirits industry. A well-known name in the U.S. beer, wine, and spirits industry is Constellation Brands, Inc. (NYSE: STZ).

The $46.7-billion beer manufacturer is headquartered in Victor, NY. It delivered upbeat earnings in three quarters of Fiscal 2022 (ended February 28, 2022), while lagging in one. In the last reported quarter, its earnings surpassed the consensus estimate by 22%.

Over the past year, shares of Constellation Brands have increased 9.8%. Presently, the company has a Moderate Buy consensus rating based on 10 Buys and four Holds.

Let’s explore why analysts’ opinions about the company are bullishly skewed.

Cheers to Beer Business

The beer business is Constellation Brands’ largest revenue generator. It accounted for nearly 76% of the company’s total revenues generated in Fiscal 2022. Revenues were up 11% year-over-year while operating income expanded 8%. Shipments grew 8.8%.

The beer business focuses on high-end products and also targets to outperform the high-end section in the years ahead. Healthy consumer demand, space & distribution opportunities, and scope for innovation are anticipated to boost growth prospects in this business.

The company is also working on a capacity expansion plan in Mexico. Capital expenditure for this business is expected to be $5-$5.5 billion between Fiscal 2023 (ending February 2023) and Fiscal 2026 (ending February 2026).

For Fiscal 2023, the company anticipates revenues for this business to increase 7%-9% year-over-year. Modelo Especial, Pacifico, Corona Extra, and Corona Premium brands are expected to be prime growth drivers.

Recently, Constellation Brands’ President and CEO, Bill Newlands, opined that the company’s “focus on building brands consumers love” has been proving advantageous. “The company is well-placed in the high-end beer market,” he added.

Impressive Financial Projections

For Fiscal 2023, Constellation Brands projects non-GAAP earnings to be within the $11.20-$11.50 per share range, reflecting an increase from $10.99 per share in Fiscal 2022.

Also, the company predicts healthy cash flows in the year, with net cash flow from operating activities predicted to range from $2,600 million to $2,800 million. Free cash flow is expected to be within the $1,300-$1,400 million range.

Sound Capital-Allocation Policy

Robust cash positions equip the company well to reward shareholders through dividends and share buybacks. In Fiscal 2022, the company repurchased shares for $1,390.5 million and distributed dividends totaling $573 million.

Presently, the company’s quarterly dividend rate is pegged at $0.80 per share, with a payment due on May 19. In the quarter ended May 2022, the company anticipates buying back shares worth $500 million. For Fiscal 2023, the company anticipates share buybacks and dividend payments to total $5 billion.


There are multiple factors like inflationary pressures, marketing investments, increasing complexity and forex woes that are concerning for Constellation Brands.

In Fiscal 2022, the operating margin for the company’s beer business decreased year-over-year, as higher depreciation, material, and brewery costs, and other factors played spoilsports. For wine and spirits, the operating margin weakened due to high warehousing and freight costs, and an increase in selling, general and administrative, and marketing expenditures.

In Fiscal 2023, the company expects revenues to decline 1%-3% year-over-year for the wine and spirits businesses.

Analysts’ Take

In the past week, Andrea Faria Teixeira of J.P. Morgan maintained a Buy rating on Constellation Brands while lowering the price target to $271 (8.91% upside potential) from $276.

The analyst believes that “the top-line momentum is more important to the STZ and with the Beer top-line trends continuing to be strong, ~100% US exposure, and committed capital allocation framework we think shares remain attractive.”

Further, Robert Ottenstein of Evercore ISI reiterated a Buy rating on the company while increasing the price target to $285 (14.54% upside potential) from $275.

“Pacifico has the potential to become STZ’s third major brand family, which would extend the duration of the growth story,” Ottenstein said.

“STZ is better positioned than its peers to manage the cost pressure given its top line strength, lower aluminum exposure, lower trucking mix, and highly efficient breweries,” he added.

Meanwhile, Deutsche Bank analyst Stephen Powers maintained a Hold rating on Constellation Brands while increasing the price target to $250 (0.47% upside potential) from $240.

The analyst has, however, lowered its earnings forecast from $11.67 per share to $11.46 for Fiscal 2023 on expectations of “reduced segment operating profit both in beer and wine & spirits, as well as a slightly higher tax rate.”

Other Key Metrics

Constellation Brands’ average price forecast of $273.23 suggests 9.81% upside potential from current levels. The company scores a 7 out of 10 on TipRanks’ Smart Score rating system.

On the positive side, News and Bloggers’ sentiments are Bullish on Constellation Brands. Retail investors, too, have a Very Positive opinion of the stock. On the flip side, insiders have sold the company’s shares and hedge fund holdings have also gone down in the past three months.

Per the TipRanks Risk Factors tool, STZ is at risk mainly from three factors: Finance & Corporate, Legal & Regulatory, and Ability to Sell. While the Finance & Corporate risk category contributes six risks to the total 25 risks identified for the stock, Legal & Regulatory and Ability to Sell account for five risks each.


Constellation Brands is well-positioned to benefit from solid demand in the beer, wine, and spirits industry of the United States. However, it is exposed to risks arising from strict regulatory norms of the industry and certain company-specific issues.

Under such circumstances, Constellation Brands could be a good investment choice for risk-takers and long-term investors. On the contrary, a wait and watch strategy may prove to be beneficial for short-term and risk-averse investors.

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