Despite the uncertain macroeconomic climate, beverage company Constellation Brands, Inc. (STZ - Get Rating) reported strong sales growth in its first quarter. The company continues to make strategic investments and partnerships that drive innovation and transform the industry.

However, ongoing inflationary pressures, increased marketing spending across both core products and new product launches and incremental depreciation and operating costs from brewery capacity expansions dampened the company’s operating margin in the last quarter.

Amid still high inflation and concerns of an impending recession, the company could face challenges. On the other hand, STZ has been gaining from continued strength and market position in the beer business.

The company plans to invest in the next increment of Beer Business capacity in Mexico, which should provide the long-term flexibility needed to support the expected future growth of its high-end Mexican beer portfolio.

STZ’s stock has gained 3.5% over the past month and 13.8% over the past six months to close its last trading session at $254.33.

Here are some factors that could influence STZ’s performance in the upcoming months:

Mixed Financials   

STZ’s net sales increased 6.4% year-over-year to $2.51 billion for the first quarter ended May 31, 2023. Its non-GAAP EPS came in at $2.91, representing a 9.4% increase over the prior-year quarter. However, its operating income declined 6.8% year-over-year to $764.70 million.

Solid Historical Growth

STZ’s revenue grew at a CAGR of 5.4% over the past three years. Its EBITDA grew at a CAGR of 2.8% over the past three years. Moreover, its EBIT grew at a CAGR of 2% over the past three years.

Mixed Profitability

In terms of the trailing-12-month EBIT margin, STZ’s 29.89% is 330.9% higher than the industry average of 6.94%. Its 11.62% trailing-12-month CAPEX/Sales is 268% higher than the industry average of 3.16%.

However, its 0.38x trailing-12-month asset turnover ratio is 58% lower than the 0.90x industry average. 

Favorable Analyst Estimates  

Its EPS and revenue for fiscal 2024 are expected to increase 9.7% and 6.8% year-over-year to $11.68 and $10.09 billion, respectively. Its EPS for fiscal 2025 is expected to increase 14.1% year-over-year to $13.33, while its revenue is expected to increase 6.3% year-over-year to $10.73 billion.      

Moreover, STZ’s EPS and revenue for the quarter ending August 31, 2023, are expected to increase 5.9% and 5.7% year-over-year to $3.36 and $2.81 billion, respectively.  

POWR Ratings

It’s no surprise that STZ has an overall C rating, equating to Neutral in our POWR Ratings systems. The POWR Ratings are calculated considering 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 C grade for Quality, justified by its mixed profitability. It also has a Stability grade of C, in sync with its five-year beta of 1.03. Within the Beverages industry, STZ is ranked #24 of 37 stocks.     

Click here to access the additional ratings of STZ for Growth, Value, Momentum, and Sentiment.

Bottom Line   

Despite the turbulent macroeconomic environment, STZ’s advancements in innovation and expansion have contributed to its growth. The company’s solid historical growth and favorable analyst estimates underscore the company’s prospects. However, given its mixed financials and profitability, it could be best to wait for a better entry point in the stock.

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

While STZ has an overall grade of C, equating to a Neutral rating, check out these other stocks within the Beverages industry with an A (Strong Buy) or B (Buy) rating: Coca-Cola Consolidated, Inc. (COKE - Get Rating), Suntory Beverage & Food Ltd (STBFY - Get Rating), and Ambev S.A. ADR (ABEV - Get Rating).

What To Do Next?

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STZ shares were trading at $268.19 per share on Wednesday afternoon, up $13.86 (+5.45%). Year-to-date, STZ has gained 16.58%, versus a 19.79% rise in the benchmark S&P 500 index during the same period.

About the Author: Malaika Alphonsus

Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More...

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