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Constellation Brands (STZ) Looks Well-Placed for Growth in 2022

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·4 min read
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Constellation Brands STZ has been gaining from continued growth in the beer business and robust consumer demand. Its premiumization strategy also bodes well. This led to better-than-expected third-quarter fiscal 2022 results. Organic net sales grew 4% year over year and comparable earnings of $3.12 per share rose 1%.

Speaking of its beer business, sales advanced 4.5% in the fiscal third quarter with a 3.1% increase in shipment volumes and 8.4% depletion volume growth. Sales growth can be attributable to robust consumer demand for its iconic brands. Depletion volume benefited from continued strength in Modelo Especial and Corona Extra. The Modelo Especial became the No. 1 beer brand, thus strengthening STZ’s leadership position in the high-end category.

Constellation Brands remains on track with its premiumization strategy, as evident from the accelerated growth for Power Brands in third-quarter fiscal 2022. The company’s high-end Power Brands, including The Prisoner Brand Family, Kim Crawford and Meiomi, remain key growth drivers. This, along with gains from consumer-driven innovation, aided wine & spirits’ organic sales, which improved 3% in the fiscal third quarter.

The company is making investments to fuel growth of its Power Brands through product innovation and increased focus on consumer trends. In a recent development, Constellation Brands signed a brand authorization agreement with Coca-Cola to manufacture, market and distribute the new FRESCA Mixed cocktails in the United States.

Driven by the factors, management raised its comparable earnings per share view for fiscal 2022. On a comparable basis, excluding the Canopy business, earnings per share are expected to be $10.50-$10.65, up from $10.15-$10.45 mentioned earlier. The company expects net sales growth of 10-11% for the beer segment compared with 9-11% growth mentioned earlier. Operating income for the beer business is anticipated to increase 6-7% compared with 4-6% growth stated previously.

However, STZ continues to reel under sluggishness in the wine & spirits business. Sales for the wine and spirits segment decreased 25% to $568 million in third-quarter fiscal 2022. For fiscal 2022, the company expects a 21-22% decline in net sales for the wine and spirits business. It continues to anticipate a 23-25% decline in operating income for the segment.

The company has also been witnessing supply-chain challenges, driven by congestion at ports and warehousing costs, which are likely to impact its business in fiscal 2022. Elevated material costs due to higher commodity prices and inflationary headwinds also remain deterrents for the near term.

Conclusion

Although freight headwinds and sluggishness in the wine & spirits business remain concerning, we hope that strength in its beer business, solid demand and premiumization strategy will aid the stock in the future.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

The Zacks Consensus Estimate for STZ’s fiscal 2022 sales and earnings per share suggests year-over-year growth of 1.4% each. The consensus mark for fiscal 2022 earnings has moved 1% north over the past 30 days to $10.11. Topping it, a long-term earnings growth rate of 8.9% and a VGM Score of B drives optimism. Shares of this Zacks Rank #3 (Hold) company has gained 7.1% in the past three months compared with the industry’s 0.4% growth.

Stocks to Consider

Some better-ranked companies in the Consumer Staples sector are Medifast MED, United Natural Foods UNFI and Compania Cervecerias Unidas CCU.

United Natural Foods distributes natural, organic, specialty, produce, and conventional grocery and non-food products. It currently sports a Zacks Rank #1(Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for UNFI’s current financial-year sales and EPS suggests growth of 4.8% and 7.7%, respectively, from the year-ago period’s reported figures. United Natural Foods has a trailing four-quarter earnings surprise of 35.4%, on average.

Compania Cervecerias presently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 29.6%, on average.

The Zacks Consensus Estimate for Compania Cervecerias’ sales and earnings per share for the current financial year suggests growth of 34% and 110.3%, respectively, from the year-ago reported numbers. CCU has an expected long-term earnings growth rate of 15.6%.

Medifast, one of the leading health and wellness companies, currently has a Zacks Rank #2. MED has a trailing four-quarter earnings surprise of 17.3%, on average.

The Zacks Consensus Estimate for MED’s current financial-year sales and earnings suggests growth of 63% and 49.3%, respectively, from the year-ago period’s figures.


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United Natural Foods, Inc. (UNFI) : Free Stock Analysis Report

Compania Cervecerias Unidas, S.A. (CCU) : Free Stock Analysis Report

MEDIFAST INC (MED) : Free Stock Analysis Report

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