On Wednesday, CFRA made a significant adjustment to its stance on Constellation Brands (NYSE:STZ), shifting the rating from Hold to Strong Buy and elevating the price target to $335 from the former $270. The upgrade follows the company's reported earnings for the May quarter, which surpassed consensus expectations.
Constellation Brands, known for its portfolio of imported beer brands, posted an adjusted earnings per share (EPS) of $3.57, a notable increase from $3.04 the previous year and above the anticipated $3.45. The earnings beat was attributed to better-than-expected margins.
Despite a slight miss in net sales, which came in at $2.66 billion against the consensus estimate of $2.67 billion, the company's gross margin expanded by 270 basis points to 52.7%, surpassing consensus by 100 basis points.
The firm has updated its adjusted EPS forecasts for Constellation Brands, raising them to $13.80 from $13.70 for the fiscal year 2025 (FY 25) and to $15.25 from $15.00 for FY 26. This adjustment is based on the company's forward price-to-earnings (P/E) ratio of 22.0x for FY 26, which is slightly below its 10-year mean forward P/E of 22.6x.
Constellation Brands has reiterated its adjusted EPS guidance for FY 25 to be in the range of $13.50 to $13.80, indicating a year-over-year growth of 9% to 11%. The company's performance and outlook have led CFRA to view Constellation Brands as a prime investment choice for capitalizing on the trend of imported beer gaining market share from domestic brands in the U.S. market.
The analyst from CFRA also highlighted the nearing completion of Constellation Brands' brewery expansion in Mexico. This development is expected to boost the company's volume and free cash flow growth, which in turn could lead to increased cash returns to shareholders.
In other recent news, Constellation Brands, the producer of Corona beer, has exceeded Wall Street's profit expectations for the first quarter, largely due to the robust sales of its key beer brands. Despite a slowdown in its wines and spirits segment, the company posted a comparable profit of $3.57 per share, outperforming the average analyst estimate of $3.46 per share. However, net sales slightly fell short of expectations, totaling $2.66 billion against the anticipated $2.67 billion.
Several firms, including Citi, RBC Capital Markets, and Jefferies, have maintained positive ratings on Constellation Brands.
Citi reiterated a Buy rating, expecting a 7-9% year-over-year increase in beer sales and an 8-10% growth in beer operating income. RBC Capital Markets also sustained an Outperform rating, recognizing the company's successful track record, particularly in the beer segment. Jefferies maintained a Buy rating, forecasting a 6% increase in beer depletions and sales growth of 6.3% for the first quarter.
These are recent developments that investors should keep an eye on. The company's performance in the beer market has been a focal point, especially as it prepares to release its quarterly financial results. Despite concerns over a potential slowdown in the summer months, analysts remain optimistic about Constellation Brands' ability to sustain growth amidst industry challenges.
InvestingPro Insights
Following the recent upgrade by CFRA, current metrics from InvestingPro further illuminate the investment landscape for Constellation Brands (NYSE:STZ). The company's commitment to rewarding shareholders is evident with a dividend that has been raised for 9 consecutive years, a testament to its financial health and management's confidence in sustained profitability. This is supported by the fact that the company has been profitable over the last twelve months as of Q1 2023, with a robust gross profit margin of 50.4% and a solid operating income margin of 32.01%. Additionally, Constellation Brands' liquid assets surpass its short-term obligations, indicating a strong liquidity position.
Investors may also take note of the company's valuation metrics, which show a P/E ratio of 27.49 and a price/book ratio of 4.86, suggesting a premium market valuation. The company's revenue has grown by 5.39% over the last twelve months, further reinforcing the positive outlook shared by analysts. However, it's worth mentioning that 7 analysts have revised their earnings downwards for the upcoming period, which could be a point of consideration for potential investors.
For those seeking additional insights, there are more InvestingPro Tips available for Constellation Brands, which can be explored on the InvestingPro platform. Interested readers can make use of the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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