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Constellation Brands (STZ - Free Report) is a Zacks Rank #5 (Strong Sell) that produces and markets beer, wine and spirits. It is the third-largest beer company and a leading, high-end wine company in the United States.
The company posted its first earnings miss in five quarters and the stock traded down significantly. After bouncing almost 10% off the recent lows, it might be time for longs to exit the stock due to falling earnings expectations.
About the Company
Constellation is headquartered in Victor, NY. The company was founded in 1945 and employs 10,000 people.
Constellation’s portfolio consists of high-quality brands, including Corona, Modelo Especial, Robert Mondavi, Kim Crawford, Meiomi and SVEDKA Vodka. The company conducts its operations in the United States, Mexico, Italy, and New Zealand.
The company is valued at $41 billion and has a Forward PE of 21. STZ holds Zacks Style Scores of “B” in Growth, but “D” in Value. The stock pays a dividend of 1.4%.
Q3 Earnings
The company reported EPS on January 5th, missing expectations by 1.7%. Constellation reported Q3 at $2.83 v the $2.89 expected, while revenues came in below expectations.
The company also cut its profit guidance as they warned of higher expenses. Constellation sees higher costs for raw materials, packaging, and logistics. Meanwhile some analysts are concerned that customers may trade down to cheaper drinks, which will make it harder for the company to raise prices to cover the higher costs.
Estimates
After the quarter, analysts lowered their estimates and cut their price targets.
Over the last 30 days, estimates have gone from $2.17 to $1.94, a drop of 10%. For next quarter they have fallen 6%, from $2.92 to $2.75.
Looking ahead to next year, analysts have dropped their numbers 8% over the last 60 days, from $12.76 to $11.68.
Almost every analyst that covers the stock cut their price targets after earnings:
BMO reiterated outperform but cut to $265 from $290.
JPMorgan reiterated Overweight, but lowered targets to $250 from $267.
Cowen cut to Market perform and has a $200 target.
Clearly the earnings performance will temporarily limit upside until the company gets costs under control.
Technical Take
The stock had already come well off its 2022 highs before reporting earnings, dropping from $260 to $230. After the report, the stock fell below $210, but has since rallied to the $227 area.
The 50-day moving average is at $237 and the 200-day is at $240. Investors should expect these areas to be big selling zones and take off any positions into a rally to those levels.
The stock might settle into sideways trading before taking out those recent lows. A break of the $210 area would likely bring a flush of the $200 level.
Looking to the downside, the halfway back market from COVID lows to recent highs is $182, while the 61.8% Fibonacci retracement is $163. For those looking for a better long-term entry, they should wait until the stock is in that buying zone.
Summary
Costs are adding up for Constellation Brands and it is hitting the bottom line. Investors should understand that upside in the stock is likely limited until this issue is resolved. Additionally, there is chance for more downside if the market decides to go lower.
For those interested in the alcohol space, a better option in the sector might be Heineken (HEINY - Free Report) . The stock is a Zacks Rank #1 (Strong Buy) that is trading at 10-month highs.
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Bear of the Day: Constellation Brands (STZ)
Constellation Brands (STZ - Free Report) is a Zacks Rank #5 (Strong Sell) that produces and markets beer, wine and spirits. It is the third-largest beer company and a leading, high-end wine company in the United States.
The company posted its first earnings miss in five quarters and the stock traded down significantly. After bouncing almost 10% off the recent lows, it might be time for longs to exit the stock due to falling earnings expectations.
About the Company
Constellation is headquartered in Victor, NY. The company was founded in 1945 and employs 10,000 people.
Constellation’s portfolio consists of high-quality brands, including Corona, Modelo Especial, Robert Mondavi, Kim Crawford, Meiomi and SVEDKA Vodka. The company conducts its operations in the United States, Mexico, Italy, and New Zealand.
The company is valued at $41 billion and has a Forward PE of 21. STZ holds Zacks Style Scores of “B” in Growth, but “D” in Value. The stock pays a dividend of 1.4%.
Q3 Earnings
The company reported EPS on January 5th, missing expectations by 1.7%. Constellation reported Q3 at $2.83 v the $2.89 expected, while revenues came in below expectations.
The company also cut its profit guidance as they warned of higher expenses. Constellation sees higher costs for raw materials, packaging, and logistics. Meanwhile some analysts are concerned that customers may trade down to cheaper drinks, which will make it harder for the company to raise prices to cover the higher costs.
Estimates
After the quarter, analysts lowered their estimates and cut their price targets.
Over the last 30 days, estimates have gone from $2.17 to $1.94, a drop of 10%. For next quarter they have fallen 6%, from $2.92 to $2.75.
Looking ahead to next year, analysts have dropped their numbers 8% over the last 60 days, from $12.76 to $11.68.
Almost every analyst that covers the stock cut their price targets after earnings:
BMO reiterated outperform but cut to $265 from $290.
JPMorgan reiterated Overweight, but lowered targets to $250 from $267.
Cowen cut to Market perform and has a $200 target.
Clearly the earnings performance will temporarily limit upside until the company gets costs under control.
Technical Take
The stock had already come well off its 2022 highs before reporting earnings, dropping from $260 to $230. After the report, the stock fell below $210, but has since rallied to the $227 area.
The 50-day moving average is at $237 and the 200-day is at $240. Investors should expect these areas to be big selling zones and take off any positions into a rally to those levels.
The stock might settle into sideways trading before taking out those recent lows. A break of the $210 area would likely bring a flush of the $200 level.
Looking to the downside, the halfway back market from COVID lows to recent highs is $182, while the 61.8% Fibonacci retracement is $163. For those looking for a better long-term entry, they should wait until the stock is in that buying zone.
Summary
Costs are adding up for Constellation Brands and it is hitting the bottom line. Investors should understand that upside in the stock is likely limited until this issue is resolved. Additionally, there is chance for more downside if the market decides to go lower.
For those interested in the alcohol space, a better option in the sector might be Heineken (HEINY - Free Report) . The stock is a Zacks Rank #1 (Strong Buy) that is trading at 10-month highs.