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Constellation Brands (STZ): A Must-Add to Your Portfolio

Zacks Equity Research

Constellation Brands, Inc. STZ performance has been quite impressive lately. Thanks to its strong brand portfolio, strategic initiatives and robust quarterly results the company has become a key pick for investors.

In fourth-quarter 2017, the company’s top and bottom line had topped estimates and improved year over year. While the quarter marked the company’s 10th consecutive earnings beat, Constellation Brands surpassed sales estimates for eight straight quarters now.

And if this wasn’t enough, the company also sports an impressive long term earnings growth rate of 17.8%. So what’s driving the company toward such gains? Let’s have a look into the strategic policies of the company and the factors impacting its continued success.

The overall impact of the company’s strategies and growth trajectory is clearly visible in its stock performance. In the past six months this Zacks Rank #2 (Buy) stock has gained 16.6%, outperforming the Zacks-categorized Beverages-Alcohol industry’s growth of 9.2%.

Factors Driving Growth  

Being one of the world’s largest wine companies, Constellation Brands has a formidable portfolio of well-known brands. It holds a dominant position in the premium wine and beer segment in the U.S. and is a leading producer of wine in Canada and New Zealand. This provides it with a competitive edge and bolsters its well-established position in the market. Constellation Brands is committed towards brand building by including new products.

Owing to its strategic endeavors, the company is witnessing robust depletion trends and increasing market share, especially in the U.S. beer category. Incidentally, the company was the highest growth contributor in the U.S. beer category for the fourth straight year, in fiscal 2017. This was largely backed by the company’s Ballast Point acquisition.

In addition to its strong beer business, Constellation Brands’ fourth quarter and fiscal 2017 performance is driven by higher margins across its entire product portfolio. The splendid year, along with superb cash flows enabled the company to raise dividend, buyback shares, support acquisitions and make constant investments to facilitate business growth throughout the fiscal year.

These factors also led the management to issue an encouraging guidance for fiscal 2018, where it remains focused on achieving adjusted earnings per share growth that surpassed its previously anticipated target of at least 10%. Fiscal 2018 adjusted earnings are envisioned in a range of $7.70–$8.00 per share, reflecting Constellation Brands’ favorable ongoing prospects.

The company is focused on expanding their existing business, as evident from its various buyouts including the Obregon Brewery, which bolsters its high-end Mexican beer portfolio. Constellation Brands is on track with a number of expansion plans including that of Nava brewery in Mexico and the construction of the East Coast brewery in Belleville and its glass plant expansion, which is expected to cater to more than 50% of the glass demand.

Nevertheless, the recent sale of the Canadian wine business is likely to hurt results to an extent. Stiff competition, currency fluctuations and the risk of increasing taxes remain concerns. However, effective integration and growth of its recently acquired brands makes us increasingly hopeful regarding the company’s ability to sustain growth momentum.

Other Key Picks

Investors may consider better-ranked stocks such as Aramark ARMK, McCormick & Company, Inc. MKC and B&G Foods, Inc. BGS all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Aramark delivered an average positive earnings surprise of 4.5% in the trailing four quarters and has a long-term earnings growth rate of 12%.

McCormick delivered an average positive earnings surprise of 3.1% in the trailing four quarters and has a long-term earnings growth rate of 8.8%.

B&G Foods delivered an average positive earnings surprise of 2.1% in the trailing four quarters and has a long-term earnings growth rate of 10%.

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