Berkshire Hathaway Bets on Constellation Brands—Should You?

When in need of guidance, retail investors often look toward institutional investment trends to get ideas of areas where the current economy may reward undervalued risk-taking. Spearheaded by one of the most legendary investors, it’s easy to see why Berkshire Hathaway BRK is a typical target for retail traders to investigate when seeking opportunities.  

In quarter four of 2024, Buffet’s Berkshire Hathaway opened one major position while simultaneously lowering holdings in companies like Bank of America BAC and Citigroup C. This single purchase was made by beer, wine, and spirit distributor Constellation Brands STZ, which is trading close to its 52-week low price of $161 per share. 

While confidence from Berkshire Hathaway isn’t a guarantee of future success, Constellation Brands has a few key features that could indicate future success. 

Constellation Brands: The Company Behind Corona, Modelo & More

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Headquartered in Victor, New York, Constellation Brands operates a consumer-driven alcoholic beverage service model focused on premiumization, acquiring and expanding high-end brands to meet evolving market demands.

Best known for its beer portfolio, Constellation owns popular Mexican imports like Corona and Modelo in the U.S., along with premium wine brands and spirits like Svedka Vodka and Casa Noble Tequila. 

Why Berkshire Hathaway Sees Value in Constellation Brands

Berkshire Hathaway’s investment strategy has long and famously been to buy stocks that may be trading below their fair market value and hold them for the long term. Constellation Brands has several key attributes that Buffett may have considered before adding this consumer stock to Berkshire Hathaway’s portfolio.

1. Import Beer Industry Dominance

Constellation’s portfolio of imported beers, which mainly focus on imports and distribution rights for Mexican products, makes up the lion’s share of its earnings. Constellation currently makes up a 60%-plus volume share in the premium import beer segment thanks to its 2013 acquisition of exclusive distribution rights for Mexican beer brands like Modelo and Corona. 

While beer consumption in the United States has been on a downward trend, Constellation Brand has invested in a series of research and development projects, marketing campaigns and quality control endeavors to retain its market share and return increasing gross profits for the past three consecutive years. 

Constellation recognizes its strengths, with 82% of revenue coming in through its Mexican beer imports segment. By focusing advertising efforts on expanding to new consumer bases, Constellation Brands was able to produce high-volume growth by appealing to consumers outside of the traditional Hispanic demographic. 

2. Digital and eCommerce Investments

In addition to a strong portfolio of brands, Constellation Brands also brings benefits with higher digitalization and e-commerce investments compared to other consumer brands. This investment series began during the COVID-19 pandemic when it partnered with the local alcohol distribution app Drizly. 

The company also increased its advertising budget after realizing that consumers were largely unaware buying alcohol online was legal. This early attention to online consumer trends and behavior is a positive indication in appealing to the highly digital 20-30’s shopper market. The company is currently investing more in its online shopping and e-commerce business optimization, a long-term infrastructure play that is likely to pay dividends with younger consumers. 

3. Analyst Ratings and Dividend Payments

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General analyst ratings seem to agree with Berkshire Hathaway’s decision that STZ may be undervalued.

Analyst ratings give this stock a Moderate Buy consensus rating, with a potential upside of 41.25% from its current suppressed value. 

These sentiments, plus institutional investments rising to $4 billion in quarter four of 2024, could indicate a value play. 

Thanks to its consistent dividend payments, Constellation Brands could also be suitable for a long-term wealth-building portfolio. Shares of STZ currently have a dividend yield of 2.26%, with an annualized three-year dividend growth rate of 8.96%.

The company also maintains this dividend with a reasonable 26.75% cash payout ratio, indicating that future increases may come alongside revenue bumps. 

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