3 Reasons to Watch Constellation Brands Stock This Week

Constellation Brands (STZ 2.57%) the stock is due for a bumpy trading week ahead. The owner of popular U.S. imported beer brands including Corona and Modelo will announce its latest results before the market opens on Thursday, and expectations are high as the report approaches.

Of course, growth is slowing in many of its niches, including hard seltzer. And Constellation is likely facing rising costs that will put pressure on its profits. However, the overall outlook for growth and earnings is promising. Management might even have good things to say about its capital spending plans as well as potential stock buybacks or upcoming dividend increases.

Let’s take a closer look at why this title is worth watching right now.

1. Market share wins

The market has not been kind to the less diversified liquor giants. boston beer the stock has fallen nearly 70% over the past year, in fact, as the company has faced a rapid shift in demand away from the hard seltzer products that had been more popular in earlier phases of the pandemic.

Constellation Brands has its own product in this category, Corona hard seltzer. But its growth has been more balanced lately thanks to the popularity of the wider Corona franchise and other brands, including Modelo. Beer runouts, a measure of consumer sales, rose 8% last quarter.

Look for a similar level of beer sales growth this quarter, while the smaller wine and spirits segment continues to work toward steadier gains.

2. Profit margins

Many investors have moved away from consumer-facing stocks in recent weeks as they worry about the combination of slowing demand, rising costs and heightened price sensitivity. Profitability could dip in a scenario like this, leading to lower earnings.

Yet, Constellation Brands fares better than its peers in this area. Profitability increased last quarter, in fact, as the company squeezed more efficiencies from its vertically integrated supply chain. Its ownership of key parts of that network, including breweries and glass factories, insulates it from some of the surprise gains its rivals have seen.

STZ operating margin data (TTM) by YCharts.

Still, it’s worth watching gross and operating margins on Thursday for signs that Constellation Brands is still finding room to keep prices well above total costs.

3. Cash returns

The big question in the report is whether CEO Bill Newlands and his team will issue an optimistic outlook for the remainder of fiscal 2023. Executives said in early April that the beer industry was on the right track. to achieve its general objective of between 7% and 9% annual gains on sales. The wine segment is not growing as fast, but margins are improving and are expected to grow much more over the next few years.

Longer term, shareholders should see strong returns from Constellation’s bold bets in areas such as recreational marijuana and a fully upgraded Mexican brewery network. The company’s buoyant cash flow in recent years has allowed management to make aggressive investments in these attractive areas, even as the company returns cash to shareholders in the form of dividends and share buyback expenses. .

It is this balance of growth, profitability gains and direct shareholder returns that makes Constellation Brands such an attractive stock to consider owning as part of a diversified portfolio of well-managed businesses.

Sallie R. Loera