Categories Analysis, Consumer

STZ Stock: Is Constellation Brands a good buy after strong Q2

The company is streamlining the business by divesting a portion of the wine & spirits portfolio

Constellation Brands, Inc. (NYSE: STZ) has entered the second half of the year on a high note, reporting impressive results for the August quarter and issuing strong guidance. While continuing the successful journey, the beer behemoth is on a reorganization drive with focus on rightsizing its wine & spirits business.  

Shares of the New York-based company, which sells iconic brands like Corona Extra and Modelo Especial, mostly traded sideways in the past six months, unlike the broad market that experienced a downturn. Interestingly, STZ climbed to a record high in August but pared those gains in the following weeks. The good news is that Constellation Brands has more room to grow despite the recent gains.

Buy STZ?

The strong prospects, underscored by the bullish target price that signals a 20% growth from the current levels, make the stock a compelling buy. STZ is a relatively safe bet. The strong cash flow should enable the company to keep giving solid returns to shareholders. However, some prospective buyers would find the stock a bit expensive.

From Constellation Brands’ Q2 2023 earnings conference call:

“Beyond product innovation, we continue to extend our growth in direct-to-consumer and three-tier e-commerce channels, as well as international markets. Wine and spirits DTC net sales grew 15% in the second quarter as our investments in these channels continue to yield strong performance. We also continue to outperform in three-tier e-commerce delivering dollar sales growth 16 points ahead of the competition in the second quarter.”

Constellation Brands Q2 2023 Earnings Call Transcript

Constellation Brands Q2 2023 earnings infographic

More Fizz

The company has expanded market share consistently, mainly in the beer segment, and lived up to the market’s expectations almost every time it reported earnings in the recent past. It was no different in the second quarter when adjusted profit climbed 33% year-over-year to $3.17 per share. The earnings growth was driven by a 12% increase in revenues to $2.66 billion. The top line also beat the estimates, as it did every quarter in the past two years.

Encouraged by the strong performance, the management raised its full-year sales outlook. While recent additions to the wine portfolio, like Woodbridge and Meiomi Red Blend, are doing well, the overall performance of the wine & spirits segment remains lackluster. Efforts are underway to make the business extra premium by divesting a portion of the mainstream wine portfolio, which will allow the company to focus its portfolio and efforts on delivering better growth and margins.

PEP Stock: Is PepsiCo a safe investment in the bear market?

Currently, it is offloading some of the wine labels to rival brewery The Wine Group, including the Cooper & Thief, 7 Moons, and The Dreaming Tree brands. Earlier, it had sold some of the leading brands to E&J Gallo.

Canopy Growth Investment

Meanwhile, the impairment of investments in cannabis firm Canopy Growth Corporation (NASDAQ: CGC) would be a concern in the near future, though the market for recreational marijuana remains strong. A non-cash impairment charge of $1.1 billion on the Canopy investment was recorded in the most recent quarter. The other risks are rising operating costs and the strain on consumers’ spending power amid elevated inflation.

STZ closed Friday’s regular session sharply lower but made modest gains in the after-hours. In the past twelve months, the stock gained about 6%.

Looking for more insights on the earnings results? Click here to access the full transcripts of the latest earnings conference calls!

Most Popular

DG Earnings Preview: What to look for when Dollar General reports Q3 results

Discount store chain Dollar General Corporation (NYSE: DG) will be reporting third-quarter results next week. Operating nearly 20,000 stores across the US, it is one of the largest supermarket chains

Dollar Tree (DLTR): A few points to note about the discount retailer’s Q3 performance

Shares of Dollar Tree, Inc. (NASDAQ: DLTR) were up over 1% on Thursday. The stock has dropped 13% year-to-date. The discount retailer delivered third-quarter 2023 earnings results that did not

KR Earnings: Key quarterly highlights from Kroger’s Q3 2023 financial results

The Kroger Co. (NYSE: KR) reported its third quarter 2023 earnings results today. Total company sales were $34 billion compared to $34.2 billion for the same period last year. Identical sales

Add Comment
Viewing Highlight