Investors in Constellation Brands are in good spirits this week after the company reported better-than-expected numbers and raised its outlook for the year.
The owner of Mondovi wines and Svedka vodka nearly doubled its net income in the most recent quarter to $157.2 million. It said it expects the next four quarters to see earnings in a range between $3.95 and $4.15 per share. Analysts’ average expectations had that number at $3.95.
Constellation’s stock traded at $91 per share afterhours on Wednesday, $2.62 higher than its Tuesday close.
“We’ve been firing on all cylinders as a company,” said Constellation’s CEO, Rob Sands, to CNBC’s “Closing Bell.” “Our beer business is incredibly strong. Our wine business is strong. Our spirits business is strong. We had a great quarter. We exceeded expectations.”
But, it’s been beer driving growth for Constellation. Last year, it paid $5.3 billion to acquire Corona’s U.S. distribution rights.
While the company’s wine and spirits sales fell $15 million, to $658 million, in the most recent quarter compared with the same time last year, Constellation’s beer sales were up over $106 million, to $868 million, according to its most recent filings. Given that its beer sales come with a 33.1 percent operating profit margin compared with 21.8 percent for wine and spirits, growing beer sales are good news for the company’s bottom line.
“With the acquisition they did last year, the margin capture that they’re receiving plus the visibility gave them the ability to raise estimates,” said David Seaburg, head of equity sales trading at Cowen and Company. ”There’s also a little bit of premium based on the fact that there’s a scarcity in companies that have the ability to really take a big beer brand and grow it in the United States.”
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Ari Wald, head of technical analysis at Oppenheimer & Co., sees no cracks in Constellation’s recent uptrend.
“The stock has done great,” said Wald. “I think an important point is that there are really no signs that it can’t continue to do great… It’s been a leader in its industry, a leader in the sector, [and] a leader in the market. And, I think that could continue over the long term. So, if you’re in it, stick with it.”
Wald is looking at two key levels on Constellation’s chart. First is the $86 level, which he sees as having served as resistance back in April. “That’s going to be support now,” Wald said. “The risk/reward gets very attractive as you start to tread towards that level.”
Wald is also keeping a close eye on the 100-day moving average, currently around $82 per share. “I look at that 100-day moving average very much like a center of gravity,” he said. “As we’re extended above it, I think the stock’s on its tippy toes [and] maybe a little bit more vulnerable in the near term. I think if the stock can move sideways, that 100-day catches up to price, you have a much stronger center of gravity to help propel the next leg higher.”
To see the full discussion on Constellation Brands, with Seaburg on the fundamentals and Wald on the technicals, watch the above video from CNBC’s “Street Signs.”