Constellation Brands (NYSE: STZ), an international producer and marketer of more than 100 beer, wine and spirits brands, has operations in the United States, Mexico, New Zealand, Italy and Canada. The company is also the largest multi-category (beer, wine and spirits) supplier of alcoholic beverages in the United States. In 2017, Constellation Brands’ stock price jumped nearly 50%, compared to 20% for the S&P 500, making it one of the best-performing stocks in the S&P 500 Consumer Staples . This is due to the strong performance achieved by the company, as well as the existence of huge growth prospects. The company also recently invested in Canopy Growth Corporation, the world’s largest publicly traded cannabis supplier and a leader in the Canadian medical cannabis market, giving it a first-mover advantage in an emerging and potentially important field. STZ reported strong results during the first three quarters of its fiscal year (financial year ended February 2018), with revenue growth of 10% in the beer segment, resulting in 2% sales growth for the company year-to-date. So we arrived at a price estimate of $250 for Constellation Brands, which is above market ($221 as of March 26). This is based on estimated fiscal 2018 revenue of $7.6 billion, net income of $1.7 billion, and a P/E multiple of 30. You can Click here to consult our interactive dashboard, and arrive at your own price estimate by modifying the different entries.
Our net profit forecast is based on the expectation that revenue will increase by 3% and that the net profit margin will increase to 21.9%, compared to 20.9% in fiscal 2017. Favorable pricing and lower cost of goods sold in the beer segment, rationalizing lower margin wine brands and a lower tax rate are expected to help improve the net profit margin.
Constellation Brands derives its revenue from two sources: its Beer business and the Wines and Spirits segment. STZ’s beer business is mainly in the premium category. Growth in this segment in fiscal 2018 is expected to be driven by volume and pricing growth in its Mexican operations, benefiting from increased consumer demand and increased marketing spending. The company has also undertaken a significant investment to increase its production capacity in Mexico to meet strong demand, ensuring continued volume growth in the future.
The expected decline in Wines and Spirits segment revenue is the result of the divestiture of its Canadian wine business, reflecting the company’s strategy of focusing on premium, high-margin, high-growth brands .
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