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Globe and Mail
3 days ago
- Business
- Globe and Mail
Where Will Constellation Brands Stock Be in 5 Years?
Constellation Brands (NYSE: STZ), one of the world's largest producers of beer, wine, and spirits, might seem like a reliable long-term investment. But over the past five years, its stock slipped 8% as the S&P 500 advanced 86%. Why did Constellation fizzle -- and could it be a winning investment over the next five years? Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue » What happened over the past five years? Constellation sells more than 100 brands of alcoholic beverages. It generates most of its revenue and growth from its beer business, which includes popular labels such as Modelo, Corona, and Pacifico. Its top wine brands include Kim Crawford, Robert Mondavi, and The Prisoner; and its leading spirits include Casa Noble tequila, Svedka vodka, and High West whiskey. In its fiscal 2025 (which ended in February), Constellation generated 83.7% of its revenue from beer, 14.2% from wine, and 2.1% from spirits. That was a significant shift from fiscal 2020, when it generated 67.3% of its revenue from beer, 28.4% from wine, and 4.3% from spirits. From fiscal 2020 to fiscal 2025, revenue grew at a compound annual rate of 4%. But that growth was entirely driven by its beer business, which offset its weakening sales of wine and spirits. Business Segment Fiscal 2021 Fiscal 2022 Fiscal 2023 Fiscal 2024 Fiscal 2025 Beer revenue growth 8% 11% 11% 9% 5% Wine revenue growth (7%) (18%) (5%) (10%) (7%) Spirits revenue growth (8%) (25%) 6% (7%) (11%) Total revenue growth 3% 2% 7% 5% 2% Data source: Constellation Brands. Constellation's wine and spirits business shrank during those five years as it divested dozens lower-margin brands -- including Clos du Bois, Black Box, and Paul Masson -- in a bid to expand its faster-growing premium brands. However, the company's beer sales growth also decelerated over the past two years amid supply and capacity constraints in Mexico (which were exacerbated after local voters and Mexico's government blocked the company's plans to build a massive brewery in Mexicali), price hikes that reduced sales, and the broader weakness of the U.S. beer market -- which is struggling as today's younger consumers drink fewer alcoholic beverages than prior generations. On the bottom line, Constellation turned unprofitable on a generally accepted accounting principles (GAAP) basis in fiscal 2022 and fiscal 2023 as the value of its investment in the Canadian cannabis company Canopy Growth withered. Constellation turned profitable again in fiscal 2024, but posted another loss in fiscal 2025 as the company booked a big impairment charge from the ongoing divestments of its lower-margin wine and spirits brands. On a non-GAAP basis, its comparable EPS grew at a compound annual rate of 9% from fiscal 2020 to fiscal 2025. Constellation's near-term challenges Constellation's core business seems stable, but President Donald Trump's tariffs on imports from Mexico could severely hamper the near-term growth of its beer business, which relies heavily on the Modelo, Corona, and Pacifico brands. For fiscal 2026, management expects its organic sales to stay nearly flat -- in the range of down 2% to up 1% -- as growth of as much as 3% in beer sales offsets the double-digit percentage declines of its wine and spirit segments. It will continue to prune its wine and spirits portfolio to strengthen its higher-margin brands. But on the bottom line, Constellation expects its non-GAAP EPS to decline by 8% to 11% if the current 25% tariffs against Mexican imports (which mainly affect its canned beers) remain unchanged. It could offset some of that pressure by shipping more of its beers in glass bottles, but roughly 39% of its beer shipments from Mexico come in aluminum cans. It also can't follow Coca-Cola 's example and use more plastic bottles to dodge the tariffs, since plastic bottles affect the carbonation and taste of alcoholic beverages. Constellation could attempt to pass the costs of those tariffs on to U.S. consumers by raising its prices, but the wobbly demand for alcohol among younger and lower-income consumers could sap its pricing power. Instead, it will likely need to rely more heavily on the premiumization of its wine and spirits portfolio to weather the near-term headwinds. What will happen to Constellation over the next five years? From fiscal 2025 to fiscal 2028, analysts expect Constellation's revenue to decline from $10.2 billion to $9.9 billion as it divests itself of more brands. However, they expect it to turn profitable again on a GAAP basis in fiscal 2026 and grow its EPS at a compound annual rate of 7% over the two years that follow. Assuming Constellation's results are in line with those estimates, it continues to grow its EPS at a compound annual rate of 7% over the following three years, and that it still trades at 14 times forward earnings as of the beginning of its fiscal 2031 (in March 2030), its stock would rally by about 45% to nearly $250 over the next five years. To deliver that decent gain, Constellation will have to overcome the tariff-generated headwinds while refining its wine and spirits portfolio. But the company might still underperform other consumer staples stocks that have more irons in the fire, or the S&P 500, which has generated an average annualized return of 10% since its inception. Should you invest $1,000 in Constellation Brands right now? 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Miami Herald
06-04-2025
- Business
- Miami Herald
King of Beers wants to become king of vodka teas
When thinking about canned hard iced tea brands, the first name that comes to most people's minds is Boston Beer's Twisted Tea. The Original Twisted Tea is made with brewed black tea, sugar, and natural flavors. However, its 5% alcohol volume doesn't come from liquor; it's a malt-based, non-carbonated beverage. Don't miss the move: Subscribe to TheStreet's free daily newsletter The second thing that might pop into some people's minds upon hearing this infamous name is the good old college years. Back in our college phase, we all remember the days when partying seemed to be the only form of entertainment, and as broke college students, finding the cheapest alcoholic beverage possible was like scoring the jackpot. Related: Coca-Cola and Pepsi face an unlikely new big-name soda rival Although we might now be able to afford and consume the more premium selections, back then, Svedka and Smirnoff were our vodkas of choice, Franzia was the finest wine we could afford, and Twisted Tea was our favorite boozy canned beverage. Getty Images Anheuser-Busch InBev (BUD) is one of the world's largest brewing companies and owns over 100 renowned brands. If the company's name doesn't sound familiar, it manufactures the most well-known beers, including Bud Light, Budweiser, and Michelob Ultra, to name a few. However, the brewing company has decided to expand its portfolio by launching Skimmers. Like most of its beverages, it's ready-to-drink and canned, but instead of having a malt base, it's a vodka-infused tea with a 4.5% alcohol volume, two grams of sugar, and only 100 calories. Related: Popular light beer collaborates with unexpected partner Although no alcoholic beverage is actually healthy, especially for the liver, this new canned drink is slightly better for you than the rest because it cuts out all the unnecessary sugar and reduces the caloric content. Skimmers is available in four different flavors to suit everyone's palate: Original Tea, Half & Half, Peach Tea, and Lemonade. Skimmers is a way for Anheuser-Busch to keep up with the competition and the ever-evolving consumer market to boost growth and stay relevant. Over the last few years, healthier beverage alternatives have disrupted the beverage market in the alcoholic and non-alcoholic sectors. They are growing in popularity due to newer generations' more health-conscious approach and attention to ingredients in the products they consume. The alcohol market has also been facing continuous slowdowns since the COVID-19 pandemic, which was a prosperous era for the industry. Leading many companies to struggle with declining sales. More Food and Beverage News: Starbucks menu adds energy drinks and 'lite' take on a classicHershey creates new candy that's a dream comboMcDonald's menu adds beloved Easter favorite (there's a catch) However, despite the concerning slump, there seems to be a high demand for hard iced tea. The global hard tea market was valued at $2 billion in 2021 and is expected to grow at a yearly rate of nearly 25% through 2030, according to a study by Grand View Research. Many companies have recently launched hard iced teas to expand their portfolios, including Coca-Cola's (KO) Peach Hard Tea, Hornell Brewing's Arizona Hard, and Stateside's Surfside. Even Boston Beer previously launched its own vodka-infused tea, Sun Cruiser. Related: Veteran fund manager unveils eye-popping S&P 500 forecast The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
