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Constellation Brands Stock Wavers; Credit Suisse, Morgan Stanley Praise

Credit Suisse named the alcoholic-beverage titan Constellation Brands its top pick due to its strong fundamentals.
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Constellation Brands  (STZ) - Get Constellation Brands, Inc. Class A Report shares wavered Thursday as Credit Suisse named the alcoholic-beverage titan its top pick into year-end, due to its strong fundamentals.

In addition, Morgan Stanley reiterated its overweight rating on the stock, which it sees as undervalued.

Credit Suisse rates the owner of Corona and Modelo beers outperform with a $275 price target.

That’s “based on healthy depletions, minimal seltzer exposure, and margin upside,” said Credit Suisse analyst Kaumil Gajrawala. “We expect improving supply and steady on-premise performance.”

Depletions are “expected to run below shipments this quarter,” he said. “Off-premise slowed, as consumers shifted channels and comped the depths of pantry loading/lockdowns.”

On the margin front, Chief Financial Officer Garth Hankinson “suggests margin may be better than feared due to delayed depreciation charges, incremental pricing, positive mix accretion from seltzer moderation, and cost headwinds which did not materialize,” Gajrawala said.

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“Excluding charges, we expect beer margin flat at 41% for the year, better than current guidance.”

Constellation shares recently traded at $211.13, off 0.3%. The stock has traded as much as 1.9% higher on Thursday at $215.79. It has slipped 8% in the past three months.

Meanwhile, Morgan Stanley analyst Dara Mohsenian has a $266 price target on STZ.

“We view valuation as attractive post what we view as an unwarranted pullback recently and ahead of an expected rebound in beer depletion growth, … as lingering production supply issues dissipate,” she said.

“We are encouraged by improving short-term STZ tracked channel market-share trends and underlying demand strength … with an on-premise recovery. 

"Longer term, we also see sustained high-single-digit beer-revenue growth.”