Dear Mr. Market:
We find ourselves back in earnings season, which always brings several surprises with well-known stocks…both positive and negative. Analysts and the media will tempt investors to chase returns as quarterly earnings are dissected and trading ‘advice’ is thrown around like a hot dog vendor working the crowd at a baseball game.
Our world is currently swimming in uncertainty which pushes investors to hunt for stability and returns that will enable them to reach their financial goals. Imagine if there was a stock that has posted impressive returns in both up and down markets and all the while you most likely have been supporting it yourself without even realizing it!
Constellation Brands (NYSE: STZ) is an international beverage producer and marketer with operations in the U.S., Canada, Mexico, Australia, New Zealand and Italy. They own iconic brands like: Robert Mondavi, Svedka Vodka, Ballast Point, Corona and Modelo to name just a few. In total they currently have over 100 brands in their portfolio with sales in 100 countries, 40 facilities and approximately 9,000 employees. In 2015 Constellation was one of the top performing stocks in the S&P 500 Consumer Staples Index.
The company announced their quarterly earnings results on June 30th. They beat earnings estimates by .02 per share by coming in at $1.54 per share versus the consensus estimate of $1.52. Last year for the same time period STZ had earnings of $1.26 per share with revenue up 14.8% on a year-over-year basis. The stock has also been paying a dividend of $0.31 per share since May of 2015 but that has now been increased to $0.40 per share (about a 0.96% yield).
The impressive financial results have definitely caught the attention of Wall Street. Recently hedge fund, MUFG Americas, increased its holding in Constellation Brands by over 85% according to its most current disclosure to the Securities Exchange Commission (SEC). The hedge fund now owns over $2,250,000 of STZ at the end of the most recent reporting period. The company has a market cap of $32.7 billion.
Currently there are 15 analysts that have issued opinions on STZ: Four have it as a ‘strong buy’, three as a ‘buy’, six as ‘neutral or hold’ and two come in with a ‘sell’ rating. Over the last 52 weeks the stock has traded with a low of $114.49 and a high of $167.91 and as of this writing was just over $165. Target prices for the stock range from $180 to $185 but we would caution investors to look at Constellation Brands as a long-term position and not one to be actively traded. There will be analysts and investors who shy away from the consumer staples sector and companies like Constellation Brands due to high valuations. The company currently has a P/E (price earnings) ratio of about 32 when the average for the sector is under 25. Keep in mind that if you feel the overall stock market is overvalued, the S&P 500 is still trading at under 22 times earnings… All that being said, the company continues to chug along and outperform its peers. The chart below illustrates how STZ has dominated over the last five years compared to the S&P 500 and several of its competitors in the consumer staples sector (Molson Coors Brewing Company – TAP, Anheuser Busch Inbev – BUD, Proctor & Gamble – PG, and Colgate Palmolive – CL).
Constellation Brands is a consumer staple stock, which essentially means that consumers will continue to use their products in both good and bad economic environments. Consumer staple stocks will typically outperform the broad markets through slow economic cycles as demand for their products actually increase. We would make the argument that the same could apply to positive economic environments making STZ a very appealing “all-weather” stock.
While the financials and past performance make Constellation Brands a compelling stock, the management and corporate culture allow the company to further separate themselves from the competition. President and CEO, Robert Sands, stated the following when recently discussing their quarterly results, “we made remarkable progress and achieved record-breaking outcomes that confirm we have the leadership strength, the right portfolio and the organizational discipline to be a dominant leader in the Total Alcohol Beverage (TAB) category.” Sands has been leading the company since 2007 and has assembled an impressive management team and board around him. The performance of the stock has certainly been impressive, here are a few accomplishments that the management team has accomplished:
- Leading premium wine company in the world
- Leading multi-category beverage alcohol supplier in the U.S.
- Leading beer importer in the U.S.
- Leading world-wide supplier of wines from New Zealand and Italy
- For more click here for their 2016 Summary of their Annual Report
Many investors currently find themselves with excess cash based on recent volatility in the markets but are struggling with where to invest these funds as the market has ‘moved away’ from them with its rapid recovery. Over the course of the last two years investors dollars and attention has been focused on the FANG (Facebook, Amazon, Netflix and Google) stocks. These companies helped the S&P 500 remain slightly positive last year (2015), without them it would actually have posted negative results for the year. Over the last 12 months STZ has outperformed all of these stocks except for Amazon and over the last five years it has more than doubled the performance of all of them! Before you run to your computer to buy shares of this stock we must state that past performance is no guarantee of future performance. Currently Constellation Brands is trading near its 52 week high – we would suggest that if you are interested in adding this stock to you portfolio that you monitor it and take advantage of any dips due to competitors or a broader market sell-off. If you have any questions or would like to discuss if STZ warrants a place in your portfolio we encourage you to contact us at your convenience.