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Brand Investments Shape Constellation Brands' (STZ) Growth Story
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Constellation Brands Inc. (STZ - Free Report) stock has been trending up the charts, owing to unparalleled strength in its beer business, which has been a key growth driver for years. Further, its wine & spirits business has been benefiting from its premiumization strategy focused on making investments to fuel growth of its power brands through innovation, capitalizing on priority, consumer trends, and product introductions. Additionally, its endeavors to adapt to the changes in the market, particularly growth of hard seltzer, have been tailwinds.
The investments and endeavors have not only boosted stock performance but also helped deliver consistently strong earnings performance. Notably, the company reported earnings beat for the 12th consecutive quarter in third-quarter fiscal 2021.
Coming to the stock performance, shares of Constellation Brands have rallied 6.3% year to date against the industry’s decline of 3.2%. Moreover, the Zacks Rank #2 (Buy) company has comfortably outpaced the Zacks S&P 500 composite’s growth of 5.9% and the Consumer Staples decline of 0.3% during the said period. Overall, the stock has rallied as much as 89.3% in a year’s time.
Investments Update
Constellation Brands remains keen on boosting the performance of the wine & spirits business through its premiumization strategy. Its wine & spirits premiumization strategy is playing out well, as evident from accelerated growth for Power Brands in third-quarter fiscal 2021.
Notably, the wine and spirits business delivered double-digit growth in the high-end Power Brands in IRI channels, including Kim Crawford, Meiomi and The Prisoner Brand Family, which outpaced the U.S. high-end wine and spirits category. Recent investments and product introductions include the Prisoner Cabernet Sauvignon and Chardonnay varietals, SVEDKA and High West ready-to-drink cocktails, Ruffino wine spritzer and Meiomi Cabernet Sauvignon.
As part of its efforts to enhance the premium portfolio, the company completed the divestiture of a portion of its low-end wine and spirits portfolio to E. & J. Gallo Winery for an aggregate of $810 million. Additionally, it sealed its separate but related deal with Gallo to sell the New Zealand-based Nobilo Wine brand. It also completed the divestiture of certain brands, related inventory, interests in contracts and liabilities of its grape juice concentrate business to Vie-Del Company, and the sale of the Paul Masson Grande Amber Brandy brand, related inventory and interests in certain contracts to Sazerac.
Notably, the divestitures position Constellation Brands to benefit from the persistence of premiumization trends in the market through the crafting of a winning portfolio of distinguishing high-end brands.
The company has been significantly gaining from strength in the beer business over the years. Sales at the beer business are primarily driven by shipment and depletion volume growth. Depletion volume is benefiting from improved inventory levels and robust off-premise channel sales, which more than offset the declines in the on-premise channel due to the coronavirus outbreak. Solid portfolio depletions and market-share gains in the beer business mainly stem from continued strength in the Modelo and Corona Brand Families. Notably, depletions for the Modelo Especial increased nearly 20%, while the Corona Brand Family witnessed 12% growth in the fiscal third quarter.
Additionally, the company has been capitalizing on the opportunities in the fast-growing hard seltzer category. The Corona Hard Seltzer, launched in early 2020, has achieved the number four position in the category and is currently the second-fastest moving hard seltzer. Moreover, it continues to maintain strong incrementality levels at nearly 90%.
In early fiscal 2022, the company plans to launch Corona Hard Seltzer Variety Pack #2, providing the same Corona refreshment, while expanding to new flavors. The new flavors will include pineapple, strawberry, raspberry and passion fruit. The Variety Pack #2 launch will be followed by the introduction of the hard seltzer initiative. These initiatives and product launches will strengthen Constellation Brands’ competitive position in the hard seltzer category, broaden its distribution reach and enhance market share in the high-end U.S. beer market.
Upbeat View
Investors’ optimism on the stock is further supported by its favorable view for fiscal 2021. The company expects earnings per share of $10.30-$10.55 on a reported basis, whereas it recorded a loss of 7 cents in fiscal 2020. On a comparable basis, excluding the Canopy business, earnings per share are expected to be $9.80-$10.05.
Including the effects of the Ballast Point divestiture, the company estimates net sales growth at the higher-end of 7-9% for the beer segment for fiscal 2021. Excluding the divestiture impacts, net sales are likely to be at the lower end of the aforementioned range. Operating income for the beer business is expected to increase 8-10%. Moreover, the company predicts depletions for the retained Power Brand portfolio, after the divestitures of wine and spirits brands, to increase 2-4% in fiscal 2021.
Conclusion
With that said, we believe that the company’s investments in high-end beer and spirit brands as well as efforts to explore the hard seltzer market are likely to provide it an advantage over peers. Additionally, its expected long-term earnings growth rate of 7.4% indicates that the stock is likely to retain positive momentum in the days ahead.
Compania Cervecerias Unidas, S.A. (CCU - Free Report) presently has a Zacks Rank #2 and a long-term earnings growth rate of 10.2%.
The Estee Lauder Companies Inc. (EL - Free Report) , also a Zacks Rank #2 stock, has an impressive long-term earnings growth rate of 10.7%.
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?
Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
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Brand Investments Shape Constellation Brands' (STZ) Growth Story
Constellation Brands Inc. (STZ - Free Report) stock has been trending up the charts, owing to unparalleled strength in its beer business, which has been a key growth driver for years. Further, its wine & spirits business has been benefiting from its premiumization strategy focused on making investments to fuel growth of its power brands through innovation, capitalizing on priority, consumer trends, and product introductions. Additionally, its endeavors to adapt to the changes in the market, particularly growth of hard seltzer, have been tailwinds.
The investments and endeavors have not only boosted stock performance but also helped deliver consistently strong earnings performance. Notably, the company reported earnings beat for the 12th consecutive quarter in third-quarter fiscal 2021.
Coming to the stock performance, shares of Constellation Brands have rallied 6.3% year to date against the industry’s decline of 3.2%. Moreover, the Zacks Rank #2 (Buy) company has comfortably outpaced the Zacks S&P 500 composite’s growth of 5.9% and the Consumer Staples decline of 0.3% during the said period. Overall, the stock has rallied as much as 89.3% in a year’s time.
Investments Update
Constellation Brands remains keen on boosting the performance of the wine & spirits business through its premiumization strategy. Its wine & spirits premiumization strategy is playing out well, as evident from accelerated growth for Power Brands in third-quarter fiscal 2021.
Notably, the wine and spirits business delivered double-digit growth in the high-end Power Brands in IRI channels, including Kim Crawford, Meiomi and The Prisoner Brand Family, which outpaced the U.S. high-end wine and spirits category. Recent investments and product introductions include the Prisoner Cabernet Sauvignon and Chardonnay varietals, SVEDKA and High West ready-to-drink cocktails, Ruffino wine spritzer and Meiomi Cabernet Sauvignon.
As part of its efforts to enhance the premium portfolio, the company completed the divestiture of a portion of its low-end wine and spirits portfolio to E. & J. Gallo Winery for an aggregate of $810 million. Additionally, it sealed its separate but related deal with Gallo to sell the New Zealand-based Nobilo Wine brand. It also completed the divestiture of certain brands, related inventory, interests in contracts and liabilities of its grape juice concentrate business to Vie-Del Company, and the sale of the Paul Masson Grande Amber Brandy brand, related inventory and interests in certain contracts to Sazerac.
Notably, the divestitures position Constellation Brands to benefit from the persistence of premiumization trends in the market through the crafting of a winning portfolio of distinguishing high-end brands.
The company has been significantly gaining from strength in the beer business over the years. Sales at the beer business are primarily driven by shipment and depletion volume growth. Depletion volume is benefiting from improved inventory levels and robust off-premise channel sales, which more than offset the declines in the on-premise channel due to the coronavirus outbreak. Solid portfolio depletions and market-share gains in the beer business mainly stem from continued strength in the Modelo and Corona Brand Families. Notably, depletions for the Modelo Especial increased nearly 20%, while the Corona Brand Family witnessed 12% growth in the fiscal third quarter.
Additionally, the company has been capitalizing on the opportunities in the fast-growing hard seltzer category. The Corona Hard Seltzer, launched in early 2020, has achieved the number four position in the category and is currently the second-fastest moving hard seltzer. Moreover, it continues to maintain strong incrementality levels at nearly 90%.
In early fiscal 2022, the company plans to launch Corona Hard Seltzer Variety Pack #2, providing the same Corona refreshment, while expanding to new flavors. The new flavors will include pineapple, strawberry, raspberry and passion fruit. The Variety Pack #2 launch will be followed by the introduction of the hard seltzer initiative. These initiatives and product launches will strengthen Constellation Brands’ competitive position in the hard seltzer category, broaden its distribution reach and enhance market share in the high-end U.S. beer market.
Upbeat View
Investors’ optimism on the stock is further supported by its favorable view for fiscal 2021. The company expects earnings per share of $10.30-$10.55 on a reported basis, whereas it recorded a loss of 7 cents in fiscal 2020. On a comparable basis, excluding the Canopy business, earnings per share are expected to be $9.80-$10.05.
Including the effects of the Ballast Point divestiture, the company estimates net sales growth at the higher-end of 7-9% for the beer segment for fiscal 2021. Excluding the divestiture impacts, net sales are likely to be at the lower end of the aforementioned range. Operating income for the beer business is expected to increase 8-10%. Moreover, the company predicts depletions for the retained Power Brand portfolio, after the divestitures of wine and spirits brands, to increase 2-4% in fiscal 2021.
Conclusion
With that said, we believe that the company’s investments in high-end beer and spirit brands as well as efforts to explore the hard seltzer market are likely to provide it an advantage over peers. Additionally, its expected long-term earnings growth rate of 7.4% indicates that the stock is likely to retain positive momentum in the days ahead.
Other Stocks to Consider
Diageo plc (DEO - Free Report) has an expected long-term earnings growth rate of 8.3%. It carries a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Compania Cervecerias Unidas, S.A. (CCU - Free Report) presently has a Zacks Rank #2 and a long-term earnings growth rate of 10.2%.
The Estee Lauder Companies Inc. (EL - Free Report) , also a Zacks Rank #2 stock, has an impressive long-term earnings growth rate of 10.7%.
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?
Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2021 today >>