Barbarian At The Gate: Constellation Brands (STZ)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Constellation Brands ( STZ) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Constellation Brands as such a stock due to the following factors:

  • STZ has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $81.1 million.
  • STZ has traded 737,235 shares today.
  • STZ traded in a range 206.2% of the normal price range with a price range of $3.33.
  • STZ traded above its daily resistance level (quality: 5 days, meaning that the stock is crossing a resistance level set by the last 5 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on STZ:

Constellation Brands, Inc., together with its subsidiaries, produces, imports, and markets beer, wine, and spirits in the United States, Canada, Mexico, New Zealand, and Italy. The company sells wine across various categories, including table wine, sparkling wine, and dessert wine. STZ has a PE ratio of 23.8. Currently there are 4 analysts that rate Constellation Brands a buy, 1 analyst rates it a sell, and 1 rates it a hold.

The average volume for Constellation Brands has been 1.2 million shares per day over the past 30 days. Constellation has a market cap of $15.4 billion and is part of the consumer goods sector and food & beverage industry. The stock has a beta of 1.01 and a short float of 1.9% with 3.49 days to cover. Shares are up 28.4% year-to-date as of the close of trading on Monday.

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TheStreet Quant Ratings rates Constellation Brands as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and solid stock price performance. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • STZ's revenue growth has slightly outpaced the industry average of 0.6%. Since the same quarter one year prior, revenues rose by 10.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • 46.39% is the gross profit margin for CONSTELLATION BRANDS which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 12.17% trails the industry average.
  • Compared to its closing price of one year ago, STZ's share price has jumped by 31.93%, exceeding the performance of the broader market during that same time frame. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • CONSTELLATION BRANDS has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, CONSTELLATION BRANDS increased its bottom line by earning $9.87 versus $2.06 in the prior year. For the next year, the market is expecting a contraction of 57.0% in earnings ($4.24 versus $9.87).
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Beverages industry and the overall market on the basis of return on equity, CONSTELLATION BRANDS has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.


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