Shares of this beer company are too cheap, says Jefferies

CNBC

07-07-2025

The sell-off in Constellation Brands appears overdone, according to Jefferies. Analyst Kaumil Gajrawala upgraded shares to buy from hold and lifted his price target by $11 to $205, which suggests nearly 19% potential upside from Thursday's close. Gajrawala's new rating comes after Constellation fell short of Wall Street's estimates for quarterly earnings and revenue, which were dragged by lower beer demand and tariffs on aluminum. The Modelo distributor still reiterated its forecast for fiscal 2026. "Of course the market is challenged, but there isn't a brand issue. Hispanics are drinking less beer; for reasons well discussed. It won't be forever," he wrote in a note to clients. "Guidance implies negative trends turn positive and wine turns profitable ... and comps ease at an accelerating rate. A solid balance sheet gives them time." Shares of Constellation have fallen about 22% this year, struggling due to slow growth and low visibility from socioeconomic pressures particularly with the Hispanic consumer, Gajrawala said. He remains confident in a turnaround story for the company, however, pointing to guidance reflecting an improvement in the second half of the year and a consumer that could regain its footing. He highlighted that Constellation's wine and spirits brands grew in the first quarter despite category headwinds. "In our view, STZ shares are too cheap for a good business with a good likelihood of better days ahead ... STZ shares may not earn their old multiple, but we think the selloff went too far," the analyst wrote. "When pressures ease, we believe the recovery should accelerate, driving upside. Wine is turning profitable, cash flows are strong, and buybacks are accelerating." Shares ticked 1% higher in the premarket following the upgrade. Most analysts covering the stock are bullish. LSEG data shows that 16 of 26 who cover Constellation Brands rate it a buy or strong buy. The average analyst price target implies upside of 22%.