Two Wall Street research firms are calling Constellation Brands a buy, arguing that worries over a key sales metric for the beer maker are overblown. Analysts at Jefferies last week said industrywide depletions — a measure of how much beer is sold to retailers by distributors — “remain weak” and see a likely April slowdown due to bad weather. However, distributors polled by Jefferies are bullish on Constellation, seeing buyers trade-up for its Modelo brand. Based on their bi-annual survey of the beer market, the analysts expect depletions for Constellation to rise 7% or more this year. To that end, Jefferies remains positive about the company’s ability to deliver on its fiscal 2025 guidance of 6% to 7% enterprise net sales growth, with beer up 7% to 9% and wine and spirits between down 0.5% to up 0.5%. STZ YTD mountain Constellation Brands YTD Fears about an industry slowdown are likely why Constellation shares are down 4% since reporting upbeat fiscal 2024 fourth-quarter earnings and forward guidance on April 11 compared to about a 3% rise in the S & P 500 . Shares were down roughly 1% to about $253 on Monday — still about 8% shy of their record closing high of nearly $273. Wells Fargo on Monday said it’s time to buy that “depletion miss” sell-off. “It feels like every few months, there’s a need to defend STZ’s stock on a fundamental debate (usually missing depletions) that has typically not played out, the stock rebounds, and then we go through the same cycle all over again. We appreciate how frustrating this can be for holders of the stock, namely given the focus on weekly depletions for a company that has never missed its annual depletion algorithm for the past decade. We again find ourselves defending the stock today, saying to buy the stock…now…as we think a ‘depletion miss’ debate is misguided, see valuation therefore too low, and see STZ in general on the cusp of a multi-year profit acceleration cycle,” Wells Fargo analysts wrote. We agree with that sentiment, which is why we’ve stuck by the stock. The Club and Wells Fargo both have $300 as price targets. The Wells Fargo analysts said their work suggests fiscal 2025 first-quarter estimates of depletions rising 6.5% is reasonable, with a Wall Street consensus estimate of up 7.3%. An added bit of bullishness from Wells Fargo was its argument that Constellation’s struggling wine and spirits business is not as much of a factor currently. The analysts said, “The unwind of the W & S business for STZ over the past decade is mostly done” — down from 45% of profit a decade ago and 27% of profit in fiscal year 2019. They estimate wine and spirits to be less than 10% of fiscal year 2025 profit. Jim has been calling for Constellation to get out of wine and spirits and concentrate solely on beer. Thus far, the company has not indicated a move in that direction. Elliott Management has a big stake in Constellation and the company is working with the activist investor group, which has a track record of generating value for shareholders. After last month’s strong earnings and rosy guide, Constellation CEO Bill Newlands told Jim that the company plans to improve its wine and spirits division by focusing on “critical brands” and execution. Newlands acknowledged at the time, “We spread ourselves a little too thin in the past year.” The next event, ahead of fiscal 2025 first-quarter earnings due this summer, is a presentation from Newlands and CFO Garth Hankinson at the Bernstein Strategic Decisions Conference on May 29. (Jim Cramer’s Charitable Trust is long STZ. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Cans of Corona and Modelo beer are displayed on a shelf at a BevMo store on January 05, 2024 in San Rafael, California.
Justin Sullivan | Getty Images
Two Wall Street research firms are calling Constellation Brands a buy, arguing that worries over a key sales metric for the beer maker are overblown.
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