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constellation brands

The Beer, Spirit, and Cannabis Company Ready To Explode

consumer discretionary Oct 01, 2021

As you can see from the chart below, STZ just hasn't had a great year being relatively flat since January. The main reason that this is happening is largely due to depleted inventories. Most of these depleted inventories stem from supply chain issues - something that many other sectors are feeling as well. And because of these issues, sales have been suppressed and lower than what they could have been. By not being able to match supply with demand, STZ has artificially lowered their own sales, through no fault of their own. But something is changing right before our eyes!

We are forecasting for these supply chain issues to slowly go away as production capabilities start to ramp up. The inflection point is slowly approaching!

We are early on in the trend, but barring any unforeseen changes, production should continue to scale back up as demand continues to outgrow supply. This implications of this right now are huge! If we're correctly calling the bottom, then STZ should have a large spike in sales going forward.

But how big is that spike and what does it mean for the stock price? Let's jump in below:

 
 

Constellation Overview: 

Before we dive into Constellation Brands (STZ), we just want to let you all know who they are in case you are unfamiliar with them. While the parent company is not a household name, many people should be familiar with their brands. They include:

  • Beer: Corona, Modelo Especial, Negra Modelo, Pacífico, etc.
  • Spirits: Svedka Vodka, Casa Noble Tequila, High West Whiskey, Nelson's Green Brier Tennessee Whiskey, etc.

They are the largest beer importer in the US and have the third-largest market share of all major beer suppliers globally. They also have large investments in medical and recreational cannabis.

Long story short, Constellation Brands is a powerhouse in the adult beverage and cannabis space.

Stock Outlook:

So if the beer business's sales are set to rebound, what does that mean for growth estimates?

We're expecting beer sales to make overall sales growth increase by 1% and operating margins to increase by 1.5%. While the increase to top-line growth is still in its infancy, shocks to the system should be seen as generally positive. With earnings set to announce next week, we think STZ is in a strong position to surprise analysts and perform to the upside in light of these projections going forward.

Pairing this together with upcoming share repurchases and this could be the catalyst like event needed to start pushing the stock upwards! With a stronger capital allocation mix as well, STZ is primed for a strong rebound.

We therefore are initiating an overweight position and are expecting big things for the stock over the next 6-12 months. Let's get ready for the earnings announcement coming next week!

 


 

Price Target: $265 (~32% increase)

Current Price: $200

Target Date: 8-10 Months

Dividend Yield: 1.42%

Market Cap: $40.8B

Rating: Overweight

Ticker: STZ 

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