Over the past year, Constellation Brands, Inc. (STZ) has solidified its position as a major contender in the beer, wine, and spirits sector.

With STZ poised to disclose its fiscal 2024 fourth-quarter results on April 11, 2024, this article provides an in-depth examination of the key fundamentals underlying STZ. Let’s delve deeper into the analysis.

While the company successfully exceeded EPS estimates, it failed to surpass revenue estimates in the fiscal third quarter, which ended November 30, 2023. Looking ahead, analysts are optimistic, projecting STZ’s EPS and revenue to rise 5.7% and 4.9% year-over-year to $2.09 and $2.10 billion in the fiscal fourth quarter, respectively.

The alcoholic beverages market is expected to grow at a 3.4% CAGR, driven by the rising youth population and increasing demand for craft beer. Online retailing is growing, and despite challenges during the COVID-19 pandemic, off-premise sales surged.

In addition, during the previous quarter, the company’s revenue suffered from consumers shifting their preferences towards the more affordable brands due to inflation. It maintains its fiscal 2024 comparable profit forecast of between $12 and $12.20 per share.

Moreover, the company pays an annual dividend of $3.56, which yields 1.34% on the current market price, compared to a four-year average dividend yield of 1.41%. Moreover, the company has raised its dividend payouts at a CAGR of 5.9% over the past three years and 3.8% over the past five years. On top of it, the company has consistently raised its dividend payout for the past eight years.

Shares of this wine, liquor, and beer company have soared 20% over the past year and 10.1% over the past six months to close the last trading session at $265.63.

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

Mixed Financials

STZ’s net sales for the third quarter (ended November 30, 2023) increased 1.4% year-over-year to $2.47 billion. Its gross profit rose 3.6% from the year-ago value to $1.27 billion. However, its comprehensive income attributable to STZ declined 29.4% year-over-year to $439.10 million.

Among the segments, beer sales rose by 4% year-over-year to $1.97 billion, while wine sales decreased by 7% from the prior-year quarter to $435.80 and spirits sales declined by 10% year-over-year to $66.60 million.

Mixed Growth

Over the last three years, STZ has achieved a 4.7% CAGR in revenue. However, both its net income and EPS have experienced a CAGR decline of 8.2% and 7.5%, respectively, during the same period. Additionally, its LFCF has dropped at a CAGR of 16% over the past three years.

Robust Profitability

The stock’s trailing-12-month net income margin of 15.86% is 214% higher than the 5.05% industry average. Its trailing-12-month EBIT margin of 31.74% is 256% higher than the industry average of 8.92%. STZ’s trailing-12-month EBITDA margin of 36.12% is 200.2% higher than the 12.03% industry average.

High Valuation

In terms of forward Price/Book ratio, STZ is trading at 5x, 67.3% higher than the industry average of 2.99x. Its forward P/S multiple of 4.89 is 293.1% higher than the industry average of 1.24. Additionally, its forward EV/Sales multiple of 6.09 is 257.1% higher than the industry average of 1.71.

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. 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 0.94.

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

The alcoholic beverage sector is thriving due to rising global young-adult demographics with high disposable income and a preference for premium products. Additionally, online retailing is experiencing significant growth in the sector.

As STZ commands a leading position in the beer, wine, and spirits industry, its long-term outlook appears promising. However, factors such as its elevated valuation, dim growth prospects, and high beta value contribute to an uncertain picture.

Furthermore, intensified competition in the beverage market and the impact of elevated interest rates and inflation add to the company’s challenges.

As STZ prepares for its upcoming earnings release, it might be wise to await a more favorable entry point in this beverage stock.

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

Given its uncertain short-term prospects, the odds of STZ outperforming in the weeks and months ahead are compromised. However, you may also check out these other stocks within the Beverages industry with an A (Strong Buy) ratings:

Kirin Holdings Co. Ltd. ADR (KNBWY)

Embotelladora Andina S.A. (AKO.B)

Coca-Cola Femsa S.A.B. de C.V. ADR (KOF)

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 $266.90 per share on Monday afternoon, up $1.27 (+0.48%). Year-to-date, STZ has gained 10.80%, versus a 9.48% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...

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