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Constellation Brands Upped to Strong Buy

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On Oct 5, Zacks Investment Research upgraded Constellation Brands Inc. (STZ - Free Report) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Constellation Brands has been witnessing rising earnings estimates on the back of strong second quarter fiscal 2014 results and an improved guidance for fiscal 2014. Moreover, this leading wine-maker delivered positive earnings surprises in 3 of the last 4 quarters with an average beat of 4.9%. The long-term expected earnings growth rate for this stock is 14.9%.     

Constellation Brands reported better-than-expected second-quarter 2014 results on Oct 3, 2013. The company’s adjusted earnings per share rose 35.2% year over year to 96 cents, which surpassed the Zacks Consensus Estimate of 89 cents.

Net sales in the quarter rose over twofold year over year to $1,459.8 million. Results were primarily driven by consolidation of the company’s newly acquired Crown Imports business.

Considering the positive impact from the recent acquisition of Grupo Modelo and strong second-quarter results, management raised its guidance for fiscal 2014. Constellation Brands now expects fiscal 2014 adjusted earnings to come in the range of $2.80–$3.10 per share, compared with $2.60–$2.90 projected earlier. On a reported basis, earnings per share in fiscal 2014 are now anticipated to be in the range of $9.30–$9.60.

Over the last 7 days, the Zacks Consensus Estimate for fiscal 2014 and fiscal 2015 increased 3.2% and 3.9% to $2.92 and $3.72 per share, respectively as analysts became more constructive on the stock.

As the largest wine company in the world, Constellation Brands has a formidable portfolio of well-known brands. The company’s consistent focus on brand building and its initiatives to include new products in its wine and spirits business are the key revenue drivers for the stock.

Owing to its strategic endeavors, it is witnessing robust depletion trends and increasing market share in the U.S. wine and spirits category. Moreover, the inorganic growth initiatives will further enhance the company’s performance in the coming quarters.

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