Jim Cramer is planning to stay in the game with Constellation Brands , despite a Wall Street firm moving to the sidelines on the Mexican beer importer. Bank of America on Monday downgraded the Modelo and Corona brewer’s stock to neutral from buy while slashing its price target to $255 a share from $300, implying just over 3% upside from Friday’s close. Shares of New York-based Constellation Brands fell 1.5% Monday, off their lows of the session. The stock is now up less than 1% year to date. The downgrade Monday arrived just days after Constellation Brands’ quarterly results once again showed the company’s beer and wine-and-spirits businesses were in much different places. Even with slower beer sales growth, cost-saving initiatives led to a hearty profitability beat for the segment. The wine-and-spirits segment, on the other hand, saw double-digit sales declines, and Constellation booked a steep write-down in the value of that unit’s assets in the quarter. “The Street is tired of the stock. They clearly are tired,” Jim said on Monday’s Morning Meeting while discussing the downgrade. But, he added, “I don’t see the huge risk in the stock,” especially with shares trading well below their five-year valuation average. Bank of America analysts argued the slower beer growth observed in Constellation’s fiscal 2025 second quarter may reflect more than just macroeconomic challenges. With the overall beer category showing signs of fatigue, Constellation may be running into the “law of large numbers” following sizable market share gains for its portfolio of Mexican beers, BofA analysts contended. Looking ahead, the firm lowered its revenue forecast for Constellation’s fiscal 2026 and 2027, arguing there’s “no catalyst or datapoint that suggests beer sales can re-accelerate” to the top end of Constellation’s long-term growth target for that business of 7% to 9%. In the June-to-August period reported Thursday, beer sales rose 6%, compared with increases of 8%, 11% and 11.8% in its three prior quarters. In explaining why we’re sticking with Constellation, Jim said Monday he liked what he heard from Constellation Brands CEO Bill Newlands during the executive’s appearance Friday on “Mad Money.” Newlands spoke of improving sales trends for its beer brands in the month of September, citing third-party data collected by market research firm Circana. “You’re starting to see some of this come around,” Newlands said, with sales looking better over the most recent four-week period compared to the prior 12- and 26-week stretches. This uptick coincided with increased marketing spending behind its top beer brands, Newlands said. Notably, the CEO said Constellation’s ability to spend more on advertising in the second half is enabled by its cost-saving initiatives going better than expected. Friday’s stronger-than-anticipated jobs report for September is another positive sign for Constellation, given that the health of the U.S. consumer is a key driver of the company’s performance. The Hispanic unemployment rate, in particular, dropped to 5.1% in September from 5.5% in August — an important statistic because roughly half of Constellation beer’s consumption comes from Hispanic consumers. The jobs report “gives us a lot of excitement” Newlands told Jim on Friday. “It means more people are going to have more money in their pockets, and that’s good for the beer business.” Newlands’ commentary on early signs of improvement in some premium wine brands — such as Kim Crawford, Meiomi and The Prisoner — also was encouraging, Jim said. To be sure, Newlands indicated the lower-end products in the wine-and-spirits segment continue to face challenges. Our ultimate hope remains that Constellation offloads this business, and private-equity firm Butterfly’s nearly $2 billion deal for wine maker Duckhorn announced Monday keeps that flame alive . But in the immediate term, any uplift in the segment is welcome news because it has been such a massive drag on companywide results. Stepping back even further, Constellation’s cash flow performance also supports our desire to stay invested in the stock at current levels. It was strong in last week’s’ earnings report and is poised to improve in the quarters ahead as Constellation’s spending on a new brewery in Mexico levels out. Newlands said capital expenditures on that facility will peak in ongoing fiscal 2025 – a catalyst to look forward to because it should free up additional funds to repurchase stock. Not that Constellation isn’t already active in doing so. In a recent note to clients, Morgan Stanley analysts pointed out that in the past two quarters, Constellation has bought back 1% of outstanding shares. (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. 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Bottles of Corona beer are displayed on January 05, 2024 in San Anselmo, California.
Justin Sullivan | Getty Images
Jim Cramer is planning to stay in the game with Constellation Brands, despite a Wall Street firm moving to the sidelines on the Mexican beer importer.
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