Daily Stock Pick: August 10th, 2022

Stocks ticked higher this morning after a better-than-expected consumer price index reading for July. The headline CPI rose 8.5% year over year, less than the 8.7% increase economists predicted. This morning’s rally was broad, with only energy stocks struggling.  

Today we’re highlighting a company with a decades-long history as an indispensable household name that’s been quietly diversifying, expanding, and increasing its efficiency. Moreover, the stock is currently trading at a value compared to peers.


Beer, wine, and spirits distributor and manufacturer Constellation Brands (STZ) boasts over 100 brands, including Corona, Modelo, Svedka Vodka, Casa Noble Tequila, and Robert Mondavi.   Its robust portfolio of high-quality brands also provides investors with exposure to the cannabis industry via its Canopy Growth (CGC) investment.

As the most prominent beer import company in the US, Constellation has the third highest market share (7.4%) of all major beer suppliers and generates 77% of its consolidated net sales through beer. The company has increased its production capacity four times over the last decade to meet demand and is currently focused on projects in Mexico. With $800 million invested in Mexican Beer Projects in 2022 and renewed support from the Mexican government (via a recent commitment to continued access to government-owned water sources), the expansion is likely to be highly successful.    

Investors will be tuned in during the next earnings report, slated for October 5th, looking for results from management’s recent efforts to increase capital expenditure efficiency. The company eliminated class B common stock in an effort to enhance and simplify the capital structure and corporate governance, a decision that’s expected to save $15-20 million in operating costs related to executive compensation and benefits this year.  

During its most recent release, Constellation topped Wall Street’s During its most recent release expectations for both earnings and revenue. The company reported $2.66 per share compared to analyst expectations of $2.51 per share. Revenue was up 16.6% from last year, coming in at $2.36 billion, beating the consensus estimate of $2.16 billion. The company also recently disclosed a quarterly dividend of $0.80, representing a $3.20 annualized dividend and a 1.32%. The yield seems likely to grow with a conservative payout ratio of just 14%.

Equities research analysts predict that Constellation Brands will post $10.91 earnings per share for 2022. Its current price of $242.73 indicates a P/E of 22x STZ seems undervalued compared to competitors like The Duckhorn Portfolio, Inc. with a P/E of 30x and Brown-Forman Corporation with a P/E of 37x. Of 24 analysts offering recommendations for the stock, 19 rate it a Buy, and 5 rate it Hold. There are no Sell ratings. A median price target of $274 represents a 13% upside from the current price. Last week, BMO Capital analyst Andrew Strelzik initiated coverage of STZ with an Outperform rating and a $290 price target, which implies a 20% upside. The analyst believes Constellation is an “attractive investment with favorable risk/reward as it balances a solid multi-year growth outlook with a valuation discount to peers that is too wide.”

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