Will Constellation Brands' (STZ) Fundamentals Drive Growth? - Analyst Blog
We have issued an updated research report on Constellation Brands Inc. STZ on Apr 15, 2015 following the company’s robust fourth-quarter results.
Constellation Brands ended fiscal 2015 on a strong note, propelled by the strength in its Mexican beer business and improved results of its spirits portfolio. The company reported better-than-expected fourth-quarter fiscal 2015 results on the back of strong volumes at its beer business and encouraging wine and spirits sales.
Further, the company’s strong free cash flow generation and confidence in growth prospects urged it to reward its shareholders with a dividend program. The company announced its first-ever dividend of $0.31 per share, payable on May 22, to shareholders on record as of May 8. While the company initially targets a dividend payout ratio of 25%–30% of its adjusted net income, with continued strength in cash generating ability and sustained growth, it expects to return more value to shareholders in the future through dividend hikes.
Following a strong fourth quarter, management provided a favorable guidance for fiscal 2016. Constellation Brands envisions adjusted earnings to be in the range of $4.70–$4.90, compared with $4.44 per share reported in fiscal 2015. On a reported basis, earnings per share in fiscal 2016 are anticipated to be in the range of $4.55–$4.75.
Better-than-expected results and an encouraging outlook triggered an uptrend in the Zacks Consensus Estimate, as analysts are optimistic about Constellation Brands’ future performance. The Zacks Consensus Estimate increased nearly 1% to $4.84 for fiscal 2016 and 1.5% to $5.53 for fiscal 2017 in the past 7 days.
Moreover, this Zacks Rank #3 (Hold) company is capable of carrying the growth momentum further, driven by acquisitions and expansions. This is evident from Constellation Brands’ recent 50-50 joint venture with Owens-Illinois and the related acquisition of the glass plant in Nava, Mexico. This acquisition will help the company to gain better control of its glass needs in terms of quality, flexibility and cost-effectiveness.
Further, as the largest wine company in the world, Constellation Brands has a formidable portfolio of well-known brands and enjoys a predominant position in the premium wine and beer market in the U.S. Moreover, the company’s consistent focus on brand building and its initiatives to include new products in its wine and spirits business are likely to be key revenue drivers for the stock.
However, its highly leveraged balance sheet and the risk of increasing taxes remain concerns for the company. Moreover, it faces intense competition from other well-established players in the industry, which may dent its operating performance.
Other Stocks That Warrant a Look
Better-ranked stocks in the related beverages-soft drinks industry are Monster Beverage Corp. MNST, sporting a Zacks Rank #1 (Strong Buy), Coca-Cola Amatil Ltd. CCLAY and Cott Corp. COT, both holding a Zacks Rank #2 (Buy).
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CONSTELLATN BRD (STZ): Free Stock Analysis Report
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