Constellation Brands’ bullish earnings point to continued growth

Constellation Brands Inc. New York Stock Exchange: STZ shares rose 2.4% in early trading after the adult beverage company reported a double beat in its fourth-quarter 2023 earnings report. Revenue of $2.14 billion beat estimates by 2.10 billion dollars. But it was earnings per share (EPS) that attracted the most attention. Constellation produced EPS of $2.26, 7.5% higher than the expected EPS of $2.10.

Before the earnings report, STZ shares were up 9.4% in 2024, higher than the S&P 500’s 8.2% gain and significantly higher than many other consumer staples stocks. Investors should expect the same thing for STZ stock going forward. This is supported by the company’s bullish guidance, which forecasts full-year EPS for 2025 in a range of $13.50 to $13.80 per share versus the consensus estimate of $13.43.

The anti-boycott brand continues to spread

The company cited increased sales of Modelo-brand beer as a key reason for the revenue and earnings growth. The brand surpassed Bud Light in June 2023 to become America’s most popular beer brand. This reflected the negative reaction and subsequent boycott of Anheuser-Busch InBev NYSE: BUDspecifically the company’s Bud Light brand.

If these results are any indication, consumers will continue to favor the Modelo brand. The company reported stockout growth of 14% for the Modelo Especial brand and 22% for the Pacifico brand.

Constellation Brands also said its operating margin for the beer business increased 30 basis points to 34.4% of sales. This is especially impressive as the company has to offset higher packaging and raw material costs.

Inflation is influencing consumer tastes

Not everything in the relationship was ideal for Constellation Brands. The company reported that wine and spirits sales fell 6%, citing “adverse market dynamics” that continued to pressure volumes. The company said the change was most noticeable in its larger premium brands.

This is not surprising, given that when money is tight, consumers turn to beer, which is generally less expensive than wine and spirits.

Analysts gave investors a bullish signal

Prior to the earnings report, analysts were sending bullish signals on STZ stock. Constellation Brands analyst ratings on MarketBeat show that in April alone Barclays and Wedbush reiterated their Overweight or Outperform ratings, respectively. Both are the equivalent of a purchase. Both agencies have a price target above the consensus price of $292.78, with Wedbush coming in at $300.

All signs point to a new all-time high

STZ stock hit a record high in June 2023. After a sharp decline that followed the broader market, the stock fell just below that high before the recent pullback. But right now, analyst ratings and internal company projections are aligning to send STZ to a new all-time high.

Of course, it’s tricky to account for inflation and how it can affect consumer spending. However, beyond STZ stock price growth, investors have another reason to own Constellation Brands stock. This is done through the company’s dividend. Constellation Brands announced a quarterly dividend of $1.01, an increase of 13%. It’s also the fourth consecutive year the company has increased its dividend.

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