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Constellation Brands is a Buy, says Roth

Look for alcohol giant Constellation Brands (Constellation Brands Stock Quote, Charts, News, Analysts, Financials NYSE:STZ) to build on recent sales momentum, says Roth Capital Partners analyst Bill Kirk. Kirk reviewed the latest quarterly results from Constellation on Friday and reiterated a “Buy” on the stock, saying STZ could very well beat its own guidance for the year.

With headquarters in Victor, New Jersey, and business worldwide, Constellation Brands reported its first quarter fiscal 2024 financials on Friday, coming in with net sales up six per cent year-over-year to $2.515 billion and net income down six per cent to $765 million.

“Our solid performance for the first quarter of fiscal 2024 was anchored by the consistent execution of the annual plans and strategic initiatives across both businesses,” said CEO Bill Newlands in the quarterly conference call.

Beer sales for the quarter were up 11 per cent year-over-year to $2.097 billion and shipments were up 7.5 per cent to 107 million. For its Wine and Spirits segment, revenue was $416.3 million, down ten per cent from a year earlier, with shipments of 5.9 million compared to 6.8 million a year ago.

Kirk noted that Constellation began the quarter with month of March Beer depletions close to flat, implying an acceleration throughout the quarter. 

“While not mentioned in the release, we believe the May momentum continued in June, likely putting 2Q QTD Beer Depletions ahead of 1Q results. 1Q Beer operating margins were 38 per cent, ahead of the full-year midpoint guide of 37.6 per cent. Wine segment performance remained soft, as we believe excess trade inventories slowed shipments (-9.2per cent versus depletions of -6.3per cent),” Kirk wrote.

Constellation reiterated its guidance for the fiscal 2024 year, calling for Beer net sales up 7-9 per cent, Beer operating income up 5-7 per cent, Wine net sales flat, Wine operating income up 2-4 per cent and overall adjusted EPS of $11.70-$12.00.

Kirk maintained a 12-month target price of $270 per share, which at press time represented a projected return of nine per cent.

“Over the years, STZ has impressed with the unrelenting demand for Modelo Especial, reliable cash generation of Corona, and incremental contribution from Pacifico,” said Kirk. 

“Recent Modelo weakness, even before fall price increases, had been an area of concern, but the opportunity to capture brand switching is massive in the summer months. Additionally, Pacifico, with its accelerating success in leading markets (CA, TX, etc.), is following the path of Modelo’s ascension,” he said.

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