If Constellation Brands’ (STZ) beer, wine and spirits sales are any indication, Americans’ drinking habits are quite robust, but not all alcohol-related beverage companies are good buys right now.
Constellation Brands is one of the standout beer and wine companies investors can bank on to return profits this year in an increasingly competitive and crowded industry.
Its shares have been on quite a rip the past year, boosted on increasing demand for its beer products like Corona and Modelo Especial, while sales of its wine, including Robert Mondavi, Manischewitz and Arbor Mist, are also noting gains.
This is an industry that has very little likelihood of waning, and Constellation Brands is among its strongest and most strategic players.
STZ shares were forging new all-time highs Wednesday, with STZ stock up about 3% early in the session, contributing to a year-to-date gain of 34% and 55% over the past year, with the strong positive momentum showing no signs of slowing.
The Victor, N.Y.-based company reported second-quarter results early Wednesday, beating Street expectations with a better-than-expected increase in beer sales, driven mainly by demand for the company’s new Corona cans. Constellation reported revenue growth from beer of 14%, vs. the Street view of 11.4%.
Constellation reported non-GAAP second-quarter earnings of $1.56, up from $1.11 per share a year ago and well above the Street consensus of $1.32. Revenue was $1.73 billion, up from $1.61 billion a year prior.
Constellation, while indeed welcoming gains on sales of wine and spirits like Black Velvet Canadian Whisky and Svedka Vodka, is getting a big boost in the beer department these days from its new role as full distributor of Mexican brands Corona and Modelo, as the number of drinking-age Hispanics, many of whom choose to buy Corona and Modelo, is on the rise.
Success in the beer industry is key for Constellation, as the beer segment now is moving “full-steam ahead” and is well-positioned for ongoing growth through this year. And, according to the National Beer Wholesaler Association, industry volumes are stable and predictable.
In terms of valuation, STZ stock, despite its sky-rocketing share price, is still very reasonable compared to its peers. Its price-to-earnings ratio of 30 is less than Molson Coors Brewing Company (TAP), which trades at 40 times earnings, but a bit more than those like Boston Beer (SAM), trading at 29.6 times earnings.
In another significant and positive milestone for Constellation Brands, it also just began offering its investors a cash dividend of $0.31 per share this year, saying it has plans to review increasing that offering in the quarters ahead. Based on the trajectory of its net income as of late, that dividend is certainly likely to increase.
Constellation Brands’ surprise results come amid a wave of consolidation efforts in the brewing industry, including yet another increased bid by Anheuser-Busch InBev (BUD) for SABMiller (SBMRF) Wednesday morning, which the latter company reportedly rejected.
Constellation itself is in the midst of this merger wave, having recently announced in July that it would acquire California wine brand Meiomi for $315 million.
So while Constellation Brands stock may appear overinflated as it forges new all-time highs, this stock’s price is still a good deal for investors who want to ride the wave of this strong and stable beer, wine and spirits industry.
As of this writing, Rebecca McClay did not hold a position in any of the aforementioned securities.