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Why Constellation Brands Stock Jumped 11.6% in June

Joe Tenebruso, The Motley Fool

What happened

Shares of Constellation Brands (NYSE: STZ) (NYSE: STZ-B) rose more than 11% last month, according to data provided by S&P Global Market Intelligence, following its fiscal 2020 first-quarter earnings release.

So what

The alcoholic beverage giant's net sales increased 2% year over year to $2.1 billion. Constellation's beer sales grew 7%, to $1.5 billion, driven by the strong growth of the company's Corona and Modelo brands.

Constellation's operating margin improved by 150 basis points to 39.3%, as higher prices and a positive impact from foreign currency movements more than offset higher transportation and logistics costs. In turn, operating income rose 12%, to $581 million.

All told, Constellation's comparable earnings per share -- excluding an equity loss on the company's investment in cannabis company Canopy Growth (NYSE: CGC) -- climbed 9% to $2.40. That was well above Wall Street's estimates for EPS of $2.05.

Two people tapping beer bottles together.

Investors celebrated Constellation Brands' better-than-expected results. Image source: Getty Images.

Now what

Constellation Brands' bountiful cash flow generation allows it to invest in growth initiatives even as it rewards investors with rising dividends and share repurchases. Constellation is also in the process of selling more than 30 of its wine brands for $1.7 billion. Some of this cash may eventually be directed toward expanding the company's presence in the fast-growing cannabis market.

Constellation owns a nearly 40% stake in leading marijuana producer Canopy Growth, along with warrants that would allow it to up its stake to approximately 50%. Constellation Brands could even choose to acquire Canopy Growth outright, as a means to move even more aggressively into a cannabis industry that could one day reach $166 billion in annual sales.

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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.