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Constellation Brands Profits Are on the House


As the stock surged as much as 12% on Wednesday, investors are now toasting the high life. The company's management, which I've always believed to be underrated, is far from completing what they've started. CEO Bob Ryder told investors that the company plans on reinvesting its profits back into future growth. While some investors were hoping for a dividend, I don't believe now would have been the appropriate time.

With momentum firmly on its side, it would be foolish for management to succumb to the dividend pressure and waste numerous routes for improved long-term performance. And I can see the company benefiting from things like, say, brewery capital expansion. A move along those lines could lead to revenue growth and stronger profits as well. (To say nothing about improved margins that should come with capacity expansion.)

[Read: Does Your Credit Need to Go on a Diet?]

If there are any concerns here, aside from any competitive pressures, it's that these shares have posted extraordinary gains over the twelve months, close to 120%. A lot of expectations are built into this performance. In other words, the "next round" is not guaranteed to be as bubbly.

This is where investors should seek better understanding of the complex dealings involving Grupo Modelo's brands in relation to Anheuser-Busch InBev. We shouldn't discount that there are several growth dynamics that are still at play here, not to mention the impressive revenue boost the company just enjoyed on account of the Grupo deal. What this means is that, given Constellation's ongoing restructuring efforts, one slipup is all it may take to end this party.

Management continues to remain upbeat, suggesting as much as 21% revenue growth for fiscal 2015. That's good news. It remains to be seen to what extent these targets will be reached. For now, investors are toasting the company's profitability and impressive cash flows. And I wouldn't bet against this stock once again outperforming the market in 2014.

At the time of publication, the author held no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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