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STZ Upgraded to Strong Buy

Zacks Equity Research

On Jun 12, 2013, Zacks Investment Research upgraded Constellation Brands Inc. (STZ) to a Zacks Rank #1 (Strong Buy). Shares of this alcoholic beverage company have amassed an impressive year-to-date return of 38.5%.

Why the Upgrade?

Constellation Brands gained investor confidence following the completion of its recent acquisition of Grupo Modelo, S.A.B. de C.V.’s (GPMCF) U.S. beer business from Anheuser-Busch InBev (BUD) for approximately $4.75 billion. As part of the deal, Constellation Brands acquired Grupo Modelo's Piedras Negras brewery in Nava, Mexico; Grupo Modelo's 50% stake in Crown Imports LLC; perpetual rights to market and sell Corona and other Grupo Modelo's brands currently distributed by Crown in the U.S.; and the autonomy to develop new products and line extensions within the portfolio of brands for the U.S. market.

Following the completion of the transaction, Constellation Brands is now an independent brewer and marketer of beer in the U.S. and will operate under two divisions: a beer division and a wine and spirits division. The company will now sell all brands in Crown’s portfolio including Corona Extra, Corona Light, Modelo Especial, Negra Modelo, Pacifico and Victoria from Mexico and Tsingtao from China.

Additionally, Constellation has signed a 3-year agreement with AB InBev to carry out the smooth transition of operations of the Piedras Negras brewery. In this transition period, Constellation is committed to spending $500–$600 million toward the expansion of this facility in order to double its current capacity to meet the projected demand for products in the U.S.

Moreover, we remain impressed by the company’s record of beating quarterly earnings expectations, sustained focus on brand building and initiatives to introduce new products in its wine and spirits business.

Looking at the surprise history, Constellation Brands has outperformed the Zacks Consensus Estimate for 4 straight quarters by an average of 13.3%. The recent fourth-quarter fiscal 2013 results added to the company’s upbeat performance with adjusted earnings of 47 cents per share surpassing the Zacks Consensus Estimate by a couple of cents.

Further, we believe that Constellation Brands with its formidable portfolio of well-known brands, new product offerings and strategic initiatives to strengthen its foothold in the U.S., holds a promising future. Moreover, the company is enhancing its points of distribution in retail and is well executing its strategic merchandising initiatives, which will bolster sales.

Other Stocks to Consider

Other well performing stocks in the beverages-alcohol industry are Anheuser-Busch InBev, Grupo Modelo, S.A.B. de C.V. and Beam Inc. (BEAM). All these stocks hold a Zacks Rank #2 (Buy).

Read the Full Research Report on STZ

Read the Full Research Report on BUD

Read the Full Research Report on BEAM

Read the Full Research Report on GPMCF

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