Boasting a market cap of $44.79 billion, Constellation Brands, Inc. (STZ) has established itself as a significant player in the beer, wine, and spirits industry, operating in the United States, Canada, Mexico, New Zealand, and Italy. The company offers its products through a diverse array of brands.

As STZ gears up to lift the curtains on its fiscal 2024 third-quarter results (ended November 30, 2023) on January 5, 2024, this article sheds light on the fundamental aspects of STZ. Let’s understand in detail.

In the fiscal 2024 second quarter, STZ’s beer business experienced double-digit sales growth, maintaining its dominant position in both the overall beer market and high-end categories. However, sales in the wine and spirits segment have shown slower performance.  

Its beer portfolio witnessed a modest 12% year-over-year increase in sales. On the other hand, its wine and spirits brands faced a year-over-year underperformance, with a significant 14% decline in sales.

During the second-quarter conference call with analysts, STZ’s CEO Bill Newlands noted that the demand for the company’s wine and spirits business remained subdued, particularly for its mainstream brands. This trend is attributed to consumers consistently showing a preference for beverages with premium pricing.

Nevertheless, Newlands expressed optimism by suggesting that the company anticipates its wine and spirits business to gain momentum and achieve stronger results this year.

Meanwhile, STZ’s institutional holdings have seen recent shifts. Among the 1314 institutional holders, 574 opted to increase their positions, while 548 chose to decrease theirs. In terms of price performance, the stock plunged 1.9% over the past three months but gained marginally over the past month to close the last trading session at $243.89.

Here are the financial aspects that could affect STZ’s performance in the near term:

Mixed Financials

For the fiscal 2024 second quarter, which ended on August 31, 2023, STZ’s net sales increased 6.8% year-over-year to $2.84 billion, while its attributable net income amounted to $690 million and $3.74 per share versus an attributable net loss of $1.15 billion and $6.30 per share in the same period last year, respectively.

However, as of August 31, 2023, the company’s cash and cash equivalents and total current assets came in at $83.30 million and $3.43 billion, declining 37.6% and 1.8% compared to $133.50 million and $3.49 billion as of February 28, 2023, respectively.  

Robust Profitability

The stock’s trailing-12-month net income margin of 15.50% is 216.5% higher than the 4.90% industry average. Likewise, its trailing-12-month EBIT margin of 30.87% is 267.6% higher than the industry average of 8.40%. Furthermore, STZ’s trailing-12-month EBITDA margin of 35.13% is 212.6% higher than the 11.24% industry average.

High Valuation

In terms of forward Price/Book ratio, STZ is trading at 4.40x, 54.3% higher than the industry average of 2.85x. Likewise, its forward Price/Sales multiple of 4.41 is 279.5% higher than the industry average of 1.16. Additionally, its forward EV/Sales multiple of 5.60 is 230.5% higher than the industry average of 1.70.

POWR Ratings Reflect Uncertainty

STZ’s fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, translating to a Neutral in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. STZ has a B grade for Quality, which justifies its higher-than-industry profitability.

On the other hand, the stock has a C grade for Growth in sync with its mixed growth in the last reported quarter. Moreover, STZ’s C grade for Stability is consistent with its 60-month beta of 1.02.

Within the Beverages industry, STZ is ranked #20 out of the 33 stocks.

Beyond what we’ve stated above, we have also rated the stock for Value, Momentum, and Sentiment. Get all ratings of STZ here.

Bottom Line

As STZ approaches the release of its third-quarter results, its uncertain future outlook is underscored by the underperformance of its wine and spirits business. In addition, despite such strong profitability, the company’s mixed financial growth in its last reported quarter fails to justify such a high valuation. Thus, it could be wise for investors to monitor this stock for a more opportune entry point.

How Does Constellation Brands, Inc. (STZ) Stack Up Against Its Peers?

While STZ has an overall grade of C, equating to a Neutral rating, you may also check out these other stocks within the Beverages industry: Coca-Cola Bottlers Japan Holdings Inc. (CCOJY), Compañía Cervecerías Unidas S.A. (CCU), and Suntory Beverage & Food Limited (STBFY), with an A (Strong Buy) ratings. For exploring more Beverages stocks, click here.   

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

STZ shares were trading at $242.91 per share on Wednesday afternoon, down $0.98 (-0.40%). Year-to-date, STZ has gained 0.48%, versus a -1.29% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Mukherjee

Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run. More...

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