Will Constellation Brands survive Trump tariffs?

It’s exposed to potential Trump tariffs, but things aren’t so gloomy for Constellation Brands (Constellation Brands Stock Quote, Chart, News, Analysts, Financials NYSE:STZ).

So says Roth MKM analyst Bill Kirk, who in a research update to clients November 26 maintained his “Buy” rating and price target of $298.00 on STZ.

Constellation, the largest beer import company in the United States, with brands such as Corona, Pacifico and Modelo, operates two breweries in Mexico. This, the analyst says, is where the company is most exposed.

“STZ is most exposed to possible tariffs on imports from Mexico (YTD, 86% of sales/94% of segment EBIT),” Kirk wrote. “While there is only so much mitigation that Constellation can take (cost savings, inventory positioning), we believe that: 1) implementation might not happen, rather potential tariffs open negotiations; 2) Constellation could be exempted; or 3) brand elasticities could handle some pass-through. We estimate Constellation would need a 12% beer price
increase to fully offset a 25% increase in beer cogs (i.e. keep gross profit dollars flat).”

The analyst says there is a possibility that Constellation could be exempted as the Department of Justice requires that, as part of its deal with ABI/Groupo Modelo, it produces them where ABI does, which is Mexico. He also says there is a real chance that the tariffs simply aren’t implemented.

“In 2019, President Trump proposed a 5% tariff on Mexico, with escalators to 25%,” he noted. “Through negotiations, the tariffs were not enacted. We believe Texas officials will be strongly against proposed tariffs on Mexico. Mexico is the top trading partner for the U.S. and Texas. We are unsure if the new tariffs would violate the U.S.- Mexico-Canada Agreement on trade signed into law by President Trump in 2020.”

Kirk thinks STZ will post EPS of $13.73 on revenue of $10.4-billion in fiscal 2025. He expects those numbers will improve to EPS of $15.85 on revenue of $10.9-billion in fiscal 2026.