Constellation Brands topped expectations for its second quarter earnings report Thursday morning. The alcoholic beverage maker is one of America's largest beer suppliers, and posted positive earnings growth the last four quarters. STZ stock rose before the opening bell Thursday following its results.
Constellation's beer brands include Modelo, Corona and Pacifico. And its portfolio of popular wine brands includes the Kim Crawford, Prisoner and Meiomi lines. More potent spirit sales make up a small portion of the company's revenue. Earlier this year, it partnered with Coca-Cola to launch the Fresca Mixed line of vodka spritz as part of its spirits-based, ready-to-drink cocktails in the U.S. The RTD market is expected to grow to $43.6 billion over the next five years, up from $26.4 billion in 2021, according to Data Bridge Market Research
In 2018, the New York-based company also spent around $4 billion to buy a 38% ownership stake in marijuana company Canopy Growth. Shares of Canopy have declined almost 90% since the end of that year.
Last Thursday, Credit Suisse lowered its price target on Constellation Brands stock to $277 from $292, but maintained an outperform rating. The firm predicts Constellation's top-line strength will continue on a booming beer business. Scanner data shows beer sales are up 17% year over year for the August-ended quarter, analyst Kaumil Gajrawala says in a research note. Garjrawala expects higher corporate expenses to pressure Constellation's wine segment this quarter, as well as a write-down for its hard seltzers.
For the first quarter, Constellation's beer sales grew 21% year over year to $1.9 billion. Wine sales rose 1.7% to $404 million for the period. Constellation's hard seltzer and spirit sales make up its smallest beverage segment, growing 7% to $61 million in Q1.
Constellation Brands Earnings
Expectations: Analysts predict earnings to rise 18.5% to $2.82 per share, and revenue to edge up 5.8% to $2.5 billion.
Results: Constellation reported comparable earnings of $3.17 per share on $2.66 billion in revenue.
Excluding the company's equity losses from its Canopy Growth investments, comparable EPS would have been $3.33 per share for the quarter.
For fiscal 2023, Constellation projects comparable EPS to range between $11.20 and $11.60 per share. Operating cash flow is expected to range from $2.6 billion to $2.8 billion, while free cash flow is seen between $1.3 billion and $1.4 billion.
Prior to the results, Constellation announced it was divesting a portion of its wine portfolio in an agreement with The Wine Group. The transaction is expected to close on Thursday and the wines include Cooper & Thief, Crafters Union, Monkey Bay, The Dreaming Tree, 7 Moons and Charles Smith Wines. Financial details of the transaction were not disclosed.
STZ Stock Analysis
STZ stock jumped more than 2% before Thursday's opening bell.
Constellation Brands stock is technically trading in a flat base with a 261.62 buy point according to MarketSmith. Shares have struggled to hold support above their 40-week moving average, trading just below that level of resistance on Tuesday.
The company has a 92 Composite Rating out of 99. Composite Ratings combine a number of key technical indicators into one easy-to-read score.
STZ stock's relative strength line is at a three-year high and it has an 86 RS Rating, indicating shares have been more resilient than the overall S&P 500 over the past year. Constellation also has an 86 EPS Rating after three consecutive quarters of earnings growth.
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