Bear of the Day: Constellation Brands (STZ)

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Constellation Brands (STZ Free Report) stock is down around 1% this year, which lags the S&P 500’s roughly 8% climb. The seller of Corona and other alcoholic beverages faces a changing market that has prompted Constellation to dive into the booming marijuana industry.

Recent News & Overview

Constellation’s portfolio of brands includes import beer powers Corona and Modelo, Kim Crawford and Robert Mondavi wines, as well as Casa Noble tequila and Svedka vodka. The New York-based company made headlines when it announced this summer its nearly $4 billion investment in Canadian marijuana company Canopy Growth Corp. (CGC Free Report) . The deal allows Constellation to take a controlling stake in the firm in the future.

Constellation plans to roll nonalcoholic, cannabis-infused drinks in Canada along with other legal markets. Some analysts have noted that the deal adds to Constellation’s relatively significant debt load. But beyond Canada, investors should note that the legalization of marijuana has happened relatively quickly in the U.S. on a state-by-state basis.

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The beer and wine power could see its Canopy investment turn out to be a major success, but it seems far too early to tell. With that said, Constellation is coming off a solid quarter that saw its sales climb 9% to $2.53 billion. The company also raised its fiscal year earnings outlook and reaffirmed its sales outlook for both beer as well as wine and spirits.

Stock Price Movement

Now let’s look at Constellation’s recent performance to help investors understand where STZ stands at the moment. Shares of STZ have soared roughly 270% over the last five years, which destroys the S&P’s 75% jump. If we narrow our focus, Constellation and the index are neck and neck, with STZ up roughly 32% over the past 24 months and the index up 33%.

But we can see that STZ has outperformed its industry for some time now. Shares of Constellation have climbed roughly 8% over the last 12 months, compared its industry’s nearly 15% decline. Constellation’s industry includes Anheuser Busch InBev (BUD Free Report) , Molson Coors (TAP Free Report) , Boston Beer Company (SAM Free Report) , and others.

Outlook & Earnings Trends  

Looking ahead, our current Zacks Consensus Estimate is calling for Constellation’s quarterly revenues to pop 6.8%. Meanwhile, its full-year revenues are projected to jump 7.3% to reach $8.14 billion.          

Moving on, STZ’s adjusted quarterly earnings are projected to climb by just 3%, while its fiscal year EPS figure is expected to jump 7.6%. With that said, Constellation’s quarterly earnings revision picture has turned negative.

Constellation has seen six downward earnings estimate revisions for Q3 over the last seven days, against zero upward changes. The Corona seller’s earnings revision picture has been more mixed for its current fiscal year and the following fiscal year. 

Bottom Line

Constellation is currently a Zacks Rank #5 (Strong Sell) based on its recent earnings revision trends. This tells us that some analysts are less positive about the company’s future earnings outlook. The company also sports an “F” grade for Value in our Style Scores system. Therefore, STZ might be a stock to stay away from for now.

But make sure to pay close attention to Constellation’s Canopy investment as the marijuana industry looks ready to explode. Plus, imported beers continue to perform better than their domestic counterparts.

Investors interested in the alcoholic beverage industry might want to look elsewhere for now, as many of Constellation’s peers are also currently Zacks Rank #4 (Sell) or #5 (Strong Sell) stocks.

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