by Peter Cohan | October 6, 2011 1:30 am
When times are tough, people drink alcohol. But how should you satisfy your thirst for investment profit? A few companies include Constellation Brands (NYSE:STZ[1]), Molson Coors (NYSE:TAP[2]) or Brown-Forman (NYSE:BF.B[3]).
On Thursday morning, wine and spirits maker Constellation — which sells brands such as Robert Mondavi, Svedka and Corona — reported earnings that were much better than expected. Instead of earning the 65 cents per share that analysts expected[4], the company reported a 78% rise in profits[5] to 76 cents a share. Cost cutting is paying off as Constellation’s operating margin rose from 15.4% to 21%.
Constellation has spent the past five years selling brands that don’t fit the “premium-category” wines priced from $5 to $20 a bottle, where it wants to cement its lead. During that time, it has reduced its debt from $5.3 billion to $3 billion and cut 5,100 employees to a slimmer payroll of 4,300.
Molson Coors does not look to be in such market-beatingly good shape. Its second-quarter profit of $1.23, reported Aug. 2, fell 4.65% below analysts’ expectations. And in the past month, analysts cut their Molson Coors EPS projections for 2011 — by three cents to $3.55 per share — and by seven cents to $3.74 per share for 2012[6].
Brown-Forman, maker of premium brands such as Jack Daniel’s, Finlandia, Southern Comfort and Canadian Mist, is doing much better. Brown-Forman’s adjusted EPS grew 7% to 81 cents per share in the first quarter of fiscal 2012 on 12.8% revenue growth thanks to its strong performance in the international market.
So which beverage companies should you buy? Avoid Brown-Forman and Molson Coors and consider investing in Constellation. Here’s why:
Constellation is the winner in this bunch. Its refocusing is producing profit growth that’s likely to exceed its current low valuation. Molson Coors and Brown-Forman are solid performers, but investors love them too much.
As of this writing, Peter Cohan did not own a position in any of the aforementioned stocks.
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