Action Alerts Plus holding Constellation Brands Inc. (STZ) knows you want to order a Corona with your guacamole this Cinco de Mayo. That could mean sustained success moving into this summer, said analysts at Macquarie Research in a note on Friday, March 16.
"Distributor checks suggest that 2018 is off to a strong start for STZ," analysts wrote. "Consumer demand is strong with the base brands of Corona and Modelo performing well and tremendous success with Corona Familiar six packs."
Analysts said they expect Constellation's shipments to exceed takeaway over the coming months, as distributors were preparing for immensely busy and highly popular Cinco de Mayo and summertime drinking events.
Among Constellation's biggest hits is its new Corona Premier product, which has been on the market for about two weeks. Macquarie said Premier is "here for the long term," given that management and distributors recognize a significant opportunity for the brand in the low-carb beer space.
"The brands are by far the strongest in the industry today and competitors are if anything, getting weaker," Macquarie wrote. The analysts did note, though, that Anheuser-Busch InBev (BUD) and Molson Coors Brewing Co. (TAP) have stronger chain sales organizations and subsequently faster distribution at retail. "We see this as an opportunity for significant further gains as [management] and distributors are now aggressively selling the new shelf-set data and solutions," analysts noted.
Additionally, Constellation has room to grow in its canned Corona product. It has enjoyed sustained growth of Corona Extra, while Pacifico has become a top-five brand in California, analysts wrote. "Distributors believe STZ will be successful with many of its innovations because 1) all are driven by consumer insights and 2) all are backed by strong marketing and advertising," Macquarie said.
Macquarie hiked its price target for outperform-rated Constellation shares to $255 from $250, implying 12.4% upside for the stock from its close on Thursday, March 15. Analysts see Constellation serving up a 52% premium to the S&P 500 over the next year given improved sales momentum.
Constellation has rallied 3.4% in the last month and more than 40% in the last year.