Constellation Brands' shares can still work despite declassification

Constellation Brands (STZ) remains the best stock in the category for investors looking for cannabis and beer.

Shares of the liquor and cannabis company based in Victorville, New York, sold about 1% shortly after opening on Friday, as the stock experienced an overbought zone. technical indicators and was downgraded by Deutsche Bank.

"In short, the story (in our opinion) has been" refreshed "successfully after months of confusion about the dilution of the wine / canopy and lingering concerns about the fundamental erosion of beer, said Steve Powers, an analyst at Deutsche Bank. "However, as a result, we see a much more balanced risk / return from here."

As such, he lowered his rating from "Buy" to "Keep" because much of his positive record has now been achieved.

Still, this does not shake the majority sentiment in the street that remains to the business after the company's profit trimmed for the quarter ended in February.

"The withdrawal of STZ shares in recent months has created an attractive buying opportunity for investors willing to look beyond the short-term dilution from its investment in Canopy Growth (CGC)," he said. said Drew Levine, an analyst at BMO Capital Markets. similar to those seen by Powers. "With the imminent divestiture of high-end wine brands, the STZ is about to return to double-digit bottom-line earnings growth, yet its valuation has been low for several years."

He maintained his "Buy" rating and set his price target at $ 225 per share.

The elimination of the excess of low-cost wine and the contrasting results of premium beer sales in Mexico motivate the majority of analysts who follow the stock to remain true to the bullish thesis of the latter.

"I am confident that this optimized portfolio of wine and spirits brands will enable us to generate consistent growth, surpassing the trends in the US wine market, while migrating to a 30% operating margin profile, a significant improvement over the margin of 26% achieved for this company in fiscal year 2019, "said CEO Bill Newlands in a call for results Thursday night.

He added that the company currently dominates the premium beer segment in the United States, generating 40% of the growth in the domestic category and 100% of the growth in imports over the past year.

This action motivated Goldman Sachs analyst Judy Hong to favor this name to the detriment of the Boston Beer Company (SAM), a beleaguered company, which it degraded to "Sell".

"While SAM has seen overall sales growth accelerate with innovations in flavored malt beverage (BOG) and cider in 2018, we are downgrading SAM for sale and seeing barriers in 2019 as the competition continues. It is intensifying and it is unlikely that the company will repeat its success in innovation again this year, "she explained. "We favor STZ in our liquor coverage, as its core beer portfolio remains strong and sales could have a positive potential if its FMB innovations (Corona Refresca) prove more effective."

Not to mention the still unrealized value of Canopy Growth (CGC), a leader in the Canadian cannabis market that the company could own in just a few short years. The price that Constellation has paid is also at a significant discount at this point after a run of nearly 50% in CGC stock this year.

Newlands noted that its big bet on cannabis could reach $ 1 billion by the end of the year.

On the whole, the things Constellation is looking for may be too advantageous. There is certainly too much to ignore for the majority of analysts.

"We remain" overweight "in this stock, with a solid base still at around 20%, supported by the optimal growth prospects of our beer business," said Dara Mohsenian, an analyst at Morgan Stanley, calling the STZ "underestimated growth at a good price".

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