Corona Beer Distributor Constellation Brands Gets a Downgrade

Corona and Modelo beer distributor Constellation Brands downgraded to sell by MKM Partners on availability issues bubbling over from pandemic shutdown.
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Constellation Brands  (STZ) - Get Report may face "wide out-of-stocks" this summer if the distributor of the Corona and Modelo beer brands cannot increase production in Mexico by mid-May, according to an analyst from MKM Partners. 

In a research note titled, "What we Know isn't Good - What we Don't Know is Worse," analyst Bill Kirk downgraded the brewer to sell from buy and also cut his share target price to $147 from $216, noting that certain Constellation brands/pack-sizes in the U.S. are already experiencing availability issues due to the coronavirus economic shutdown.

"Regardless of decisions made by Mexico, the breadth of STZ U.S. out-of-stocks will increase through the end of June," Kirk said. "From both a supply and demand perspective, optimism that STZ can continue its growth trajectory is misplaced."

Last month Grupo Modelo, the brewer behind Corona, Modelo and other beers, said it was suspending its beer production after the Mexican government ordered nonessential businesses to close in an attempt to stop the spread of the coronavirus.

Constellation Brands handles the distribution and import of Grupo Modelo's beers in the United States. Kirk said that for an unknown reason Constellation is partially producing in Mexico and he believes that the Mexican government is giving the company some leniency as an exporter-only.

"Constellation needs full capacity by end of May to prevent big July problem in the U.S.," Kirk said, adding that "based on Covid-19 case rates and their own guidelines, it's hard to argue Mexico will allow for increased activity on May 18th."

Corona beer drew attention after some consumers mistakenly associated it with the fast-spreading virus. Constellation Brands CEO Bill Newlands said on Yahoo Finance earlier this week that most consumers "...understand Corona the brand has nothing to do with corona the virus."

Shares of Victor, New York-based Constellation Brands were down slightly at $164.07 in Friday trading.