Morgan Stanley Views Constellation Brands Agreement With Elliott As A Strength

Morgan Stanley analyst Dara Mohsenian reiterated an Overweight rating on the shares of Constellation Brands Inc STZ with a price target of $290.

The company had entered into an information-sharing agreement with Elliott Investment Management L.P.

Under the Information Sharing and Cooperation Agreements, Elliott has agreed to a standstill, voting, confidentiality, and other provisions.

The company also appointed two new independent directors, Luca Zaramella and William Giles to its board.

According to the analyst, STZ's collaboration with Elliott could accelerate the re-rating and increase the probability of a short-term bull-case (32% upside).

While one could speculate on changes Elliot could potentially help drive at STZ, the analyst thinks changes are already underway at STZ and under management.

Elliot's presence both solidifies investor visibility on better governance/capital allocation, as well as the magnitude of changes, and can also indirectly help spur investor interest, said the analyst.

The analyst views the Elliott agreement as the latest step STZ has taken to improve governance and distance the company from its historical poor capital allocation.

The agreement, the analyst said, should allow the market to focus on the robust growth profile for the company's beer business.

The analyst expects sustained high-single-digit percentage beer top-line growth, with accelerating volume momentum exiting F1Q, which should further allay prior slowdown concerns.

Price Action: STZ shares are trading higher by 5.64% at $268.68 on the last check Wednesday.