A Constellation Brands Stock Prediction In 2019 (Buy or Sell?)
An investment truism: invest in products that people will always want, in good times or bad. And when it comes to providing a product that people crave the world over, alcoholic beverage makers pass the test.
Constellation Brands (NYSE: STZ) is one of the world’s leading purveyors of beer, wine and distilled beverages. The company recently garnered headlines by making a large investment in the burgeoning marijuana industry.
Should you belly up to the bar for shares of Constellation Brands? Or will the company’s ambitious expansion into cannabis give investors a hangover? Let’s find out.
What is Constellation Brands?
Constellation Brands produces, imports, and markets beer, wine, and distilled spirits in the United States, Canada, Mexico, New Zealand, and Italy.
With a market cap of $36.2 billion, the company’s portfolio of famous brands reads like the menu in a bountifully stocked bar.
Beer brands include Corona Extra, Corona Light, Modelo Especial, Modelo Negra, Modelo Chelada, Pacifico, Victoria, Funky Buddha, Obregon Brewery, and Ballast Point.
Wine brands include 7 Moons, Black Box, Clos du Bois, Estancia, Mount Veeder, The Dreaming Tree, Franciscan Estate, Nobilo, The Prisoner, Kim Crawford, Ravage, The Velvet Devil, Kung Fu Girl, Mark West, Meiomi, Robert Mondavi, Ruffino, Simi, Schrader Cellars, and Charles Smith.
Spirits brands include Casa Noble, High West, SVEDKA Vodka, Black Velvet Canadian Whisky, Casa Noble Tequila, and High West Whiskey.
Constellation Brands provides its products to wholesale distributors, retailers, on-premise locations, and state alcohol beverage control agencies. The company is headquartered in Victor, New York.
How Has Constellation Brands Stock Performed?
- Over the past 12 months, STZ lost 12% compared to a gain of 2.5% for the S&P 500.
- Over the past two years, STZ gained 20.8% versus a gain of 19.3% for the S&P 500.
- Over the past five years, STZ gained 175.1% compared to a gain of 51.8% for the S&P 500.
How Has Constellation Brands Performed In 2017/2018?
- In 2017, STZ gained 47.7% compared to a gain of 19.4% for the S&P 500.
- In 2018 year to date, STZ has lost 15.8% whereas the S&P 500 has gained 0.01%.
Who Are Constellation Brands Rivals?
Diageo (NYSE: DEO)
Sporting a market cap of $86 billion, London-based Diageo is the world’s largest producer of spirits and a major producer of beer and wine.
The company’s brands include Johnnie Walker (the world’s #1 blended scotch whiskey), Crown Royal, Bushmills, Seagram’s VO, and J&B whiskies; Smirnoff (the world’s best-selling vodka), Popov, Ketel One and Ciroc vodkas; Gordon’s, Tanqueray, Gilbey’s, Booth’s, and Nolet’s gin; Captain Morgan, Bundaberg, Pampero, Cacique, Myers’s, and Zacapa rum; Guinness (the world’s #1 stout), Harp, Red Stripe, and Kilkenny beer; and Bailey’s Irish Cream liqueur (the world’s best-selling liqueur).
Brown-Forman (NYSE: BF-B)
With a market cap of $22.4 billion, Louisville, Kentucky-based Brown-Forman is one of the largest U.S.-based makers and marketers of spirits and wines. The company makes Jack Daniel’s sour mash Tennessee whiskey, Woodford Reserve, Finlandia vodka and many more.
The company markets its famous products into North America, France, Germany, Italy, Spain, Poland, Australia, Mexico, Japan, Korea, Russia, Turkey, the Czech Republic, South Africa, and Brazil.
Anheuser-Busch Inbev (NYSE: BUD)
This multinational drink and brewing colossus (market cap: $140 billion) was formed in 2016 when AB InBev completed its $106 billion purchase of rival SABMiller. Based in Leuven, Belgium, Anheuser-Busch Inbev commands a 28% market share of global volume beer sales.
Beer brands include Budweiser, Bud Light, Stella Artois, Beck’s, Castle, Castle Lite, Hoegaarden, Leffe, Aguila, Antarctica, Brahma, Cass, Chernigivske, Cristal, Harbin, Jupiler, Klinskoye, Michelob Ultra, Quilmes, Victoria, Sedrin, and Skol.
Will Constellation Brands Go Up In 2019 (Should You Buy)?
The stock market has been choppy and caught in a downtrend, amid mounting investment risks.
The latest evidence suggests that the inflation boogeyman is rattling its cage, stoking fears that the Federal Reserve will hike interest rates more aggressively than planned. Investors are afraid that higher rates will choke off a still vulnerable economic expansion. Exacerbating investor anxieties is the global trade war, as the U.S. and China launch tit-for-tat tariffs.
My advice? Keep your eye on long-term trends and try to ignore the temporary ups-and-downs of the economy and interest rates. Stick with companies that make products that enjoy persistent demand — and human beings everywhere will always love to drink.
Constellation’s brands enjoy durable name recognition and customer loyalty. I’m also encouraged by Constellation’s strategic plan to enhance efficiency, cut costs and expand into new markets.
One of Constellation’s boldest moves came in August 2018, when it increased its existing stake in marijuana company Canopy Growth (NYSE: CGC). Constellation paid $3.8 billion to boost its ownership of CGC to 38%, to help fuel Canopy’s development of new products that serve the global medical and recreational marijuana industry.
This video explains in greater detail the landmark deal between Constellation Brands and Canopy Growth:
In the U.S., 30 states and the District of Columbia have legalized marijuana to some degree. In October 2018, Canada became the second country, after Uruguay, to legalize possession and use of recreational cannabis for all adults. Medical marijuana has been legal in Canada since 2001.
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According to research firm Statista, sales of medical and recreational marijuana will reach $4.75 billion and $6.07 billion in 2018 respectively. By 2025, both forms of the drug will generate combined sales of $24.07 billion (see chart):
“Mary Jane” has moved from Woodstock to Wall Street, representing a disruptive force for pharmaceutical, tobacco and beverage companies.
The management at Constellation Brands realizes that the marijuana industry is one of the greatest growth opportunities in the world. By investing in Canopy Growth, Constellation aims to get in front of the trend. The $3.8 billion cash infusion is slated for investment in cannabis-infused drinks and edibles, a market with huge growth potential that’s a good fit for Constellation’s product portfolio.
To better focus on its cannabis venture, Constellation Brands is considering the sale of certain wine labels that appear to be slowing in demand.
Constellation Brands is branching out into other entrepreneurial areas. In December 2018, the company announced that its venture capital arm, Constellation Brands Ventures (CBV), plans to invest $100 million in female-founded or female-led businesses in the alcohol industry and related categories by 2028.
The company already has completed its first investments in two specialty beverage start-ups: Austin Cocktails and Vivify Beverages. As with the Canopy investment, a major goal is to pinpoint promising areas in the early stages and provide seed capital.
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Despite these outsized growth prospects, STZ shares trade at a forward price-to-earnings ratio (FPE) of 18.3, only a slight premium to the S&P 500’s FPE of 17.
Will Constellation Brands Go Down In 2019 (Should You Sell)?
The bear argument centers on expectations for marijuana industry growth, which the pessimists say is excessive.
The naysayers complain that Constellation Brands got carried away by pot stock euphoria and overpaid for Canopy Growth, an unproven company that might not live up to its hype.
Even worse, regulators could decide to clamp down on marijuana commercialization, which would bring the “green rush” to a screeching halt.
Another concern are recessionary storm clouds on the horizon. The global economy is long overdue for a pullback, which might constrain consumer stocks such as Constellation.
Overall Constellation Brands Forecast And Prediction For 2019
The bull case for Constellation remains strong. Commercialization of both medical and recreational marijuana continues apace; it’s highly unlikely that politicians are willing or able to stop the trend. Besides, governments at home and abroad are getting addicted to the tax revenues generated by marijuana. Few policymakers would want to stop the gravy train.
What’s more, Constellation Brands occupies a consumer niche that’s historically recession-resistant. In fact, during hard economic times, people tend to drink even more, for escapism.
The average analyst expectation is for Constellation Brands to rack up year-over-year earnings growth in 2018 of 8.6%, and 8.1% in 2019. Over the next five years, the projected rate of earnings growth is 12%, on an annualized basis.
If you’re looking for capital appreciation potential at a reasonable valuation, Constellation Brands is a heady brew of growth and safety.
John Persinos is the managing editor of Investing Daily.