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Here's Why Constellation Brands Stock Continues to Surge

Zacks Equity Research

Constellation Brands Inc. STZ has been gaining from its spectacular earnings surprise history driven by constant brand-building efforts, acquisitions and strength in its beer business. The cumulative effect of these traits is visible in the company’s bull run in the past year.

Shares of Constellation Brands surged 44% in a year, outperforming the industry’s growth of 21.7%. Let’s analyze the factors boosting this Zacks Rank #2 (Buy) stock’s performance.

Robust Earnings Trend, Outlook Raised

Constellation Brands boasts an impressive earnings surprise history of 13 straight quarters and solid bottom-line growth for 18 consecutive quarters. The company’s third-quarter fiscal 2018 results gained from constant efforts to drive consumer demand for its robust brand portfolio. Contributions from acquisitions along with continued strength particularly in the beer business aided results as well.

Meanwhile, management remains encouraged by Constellation Brands’ outstanding results along with the strength in the beer business that led to improved earnings outlook for fiscal 2018. While, the company raised fiscal 2018 operating income target for the beer segment, it retained the sales forecast for the same time period.

Currently, it envisions adjusted earnings guidance in a range of $8.40-$8.50 per share. Operating income for the beer segment is also anticipated to grow 18-19%.

Strategic Initiatives Boost Revenues

Constellation Brands’ constant brand building efforts and initiatives to add new products to its robust portfolio are the key revenue drivers. Owing to its strategic endeavors, the company is witnessing increasing market share, especially in the U.S. beer category. Notably, the company was the highest growth contributor in the U.S. beer category and generated 80% of the total U.S. beer category growth.

In addition, the company is focused on expanding in the craft beer space, which has become a solid growth avenue in the beer space. In this regard, management expects solid results from its Ballast Point craft beer brand, which is currently placed among the top 20 craft brands nationwide.

Constellation Brands remains focused on expanding its business operations in order to achieve growth. Its recent acquisitions in the beer segment include Funky Buddha Brewery, a leading craft brewery in Florida, Fathom IPA by Ballast Point Brewery and the Obregon Brewery.

Moreover, the company is on track with the glass plant expansion, which is expected to cater to more than 50% of the glass demand.Some acquisitions enhancing its wine business portfolio include Schrader Cellars, High West Distillery, Charles Smith Wines and The Prisoner Wine Company brands. Constellation Brands sees immense potential for growth in its wine and spirits business, which in turn might benefit the company’s performance.

Beer Business Strength – A Key Growth Drive

Constellation Brands’ beer business has been performing significantly well over the years. Improved beer business sales in the third-quarter fiscal 2018 can be mainly attributed to rise in shipment volumes and depletions growth. Additionally, solid portfolio and share gains for the Modelo brand family along with market share gains in the United States during the Labor Day and Thanksgiving holidays contributed to this segments’ performance. Improvement in earnings was primarily driven by lower cost of products sold as well as strong margins in the beer business.

Do Alcohol Stocks Grab Your Attention? Check These

Investors interested may also consider stocks such as Boston Beer Company Inc. SAM, Brown Forman Corporation BF.B and Craft Brew Alliance BREW. While Boston Beer and Brown Forman sports a Zacks Rank #1 (Strong Buy), Craft Brew carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boston Beer delivered an average positive earnings surprise of 63.3% in the trailing four quarters. It has a long-term earnings growth rate of 5%.

Brown Forman delivered an average positive earnings surprise of 6.9% in the trailing four quarters. It has gained 19.7% in the past three months.

Craft Brew pulled off an average positive earnings surprise of 250.2% in the trailing four quarters. In addition, the stock has gained 6.5%  in the past three months.

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Brown Forman Corporation (BF.B) : Free Stock Analysis Report
 
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