Analysts Think Constellation's Beer Bash Will Keep The Party Going

Investors were trickling out of the Constellation Brands, Inc. STZ party on Thursday and Friday, but sell-side analysts urged them to relax, pop open a cold one, and stick around with the stock.

“A lull in the party calls for more beer,” wrote one analyst. And the beer was good this quarter for Constellation.

The Analysts

Wells Fargo’s Bonnie Herzog reiterated an Outperform rating and $235 price target on the stock.

Bank of America analyst Bryan Spillane reiterated a Buy rating while lowering the price target from $221 to $220.

Credit Suisse analyst Kaumil Gajrawala reiterated an Outperform rating but lowered the target price from $230 to $228.

The Theses

In a word, beer.

Modelo Especial had the highest dollar sales growth in the entire U.S. beer category, noted Herzog, who called Constellation “the best buy in alcohol,” and one of the most attractive stocks in the whole consumer staples sector. Modelo contributed 30% of category growth in the second quarter, and there were also solid gains for Corona.

Modelo’s double-digit growth helped keep the beer category “humming along,” Gajrawala wrote in a note. He sees an opportunity to own the stock on the now lower price, and cited ongoing optimism in raised EPS and cash flow guidance.

The faster-than-average sales and EPS growth also kept Spillane bullish.

“A lull in the party calls for more beer,” was Spillane’s summary of the quarter.

Innovation

But Herzog was also impressed by the company’s innovation beyond the hot-selling Mexican beers, praising several new or coming products, including a Corona hard seltzer with zero carbs and “virtually no sugar,” Modelo Reserva Tequila and Bourbon, a new low calorie American lager, and Seaworthy Hard Nitro Brew, a coffee-beer combo.

“It’s clear STZ has not been complacent!” Herzog wrote. “In sum, we are incrementally more bullish on STZ given strong FQ2 beer results and the sheer scale of its 2020 rollout.”

Price Action

After dropping about $10 per share in Thursday's session, Constellation's stock was down 0.67% at $193 heading into the Friday afternoon Happy Hour.

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