Beverage Stocks: Macquarie Bullish On Diageo, Pepsi, But Says Constellation's Asset Sale Was Underpriced

It’s been a mixed bag for beverage investors in recent quarters, but one analyst reiterated coverage of three beverage names on Thursday and said there’s an excellent buying opportunity for selective investors.

The Analyst

Macquarie analyst Caroline Levy has the following coverage: 

• Diageo plc DEO, reiterated Outperform rating, price target raised from  31 pounds ($40.26) to 35 pounds ($45.45). 
• Constellation Brands STZ, reiterated Neutral rating and $183 price target.
• PepsiCo, Inc. PEP, reiterated Outperform rating, price target raised from $126 to $138.

The Thesis

For Diageo, Levy said industry contacts are bullish on the North American market. Smirnoff sales have stabilized, while Crown Royal, Ketel One, Don Julio and Casamigos sales have accelerated. (See the analyst's track record here.) 

The near-term picture for Constellation isn’t quite so bright, she said. While Macquarie is anticipating a bounce-back in beer sales in April, Levy said the company’s recent wine asset sale to Gallo was at a questionably low price and reduces Constellation’s influence on wholesalers and retailers.

Finally, the analyst said PepsiCo should generate 4-percent organic sales growth in 2019 and 5-percent growth in 2020. EPS growth should follow suit, reaching 8-9 percent in 2020 and beyond, Levy said. 

“We expect marketing hikes, stronger execution in beverages and more laser focus on winning brands, strategies and packages to drive continued, sustainable improvement." 

Price Action

• PepsiCo shares were up 0.65 percent at the time of publication Thursday. 
• Constellation Brands was up 3.73 percent. 
• Diageo was up 0.58 percent.

Related Links:

Bank Of America Initiates Coverage On Cannabis Stocks, Names Surprising Top Pick

Canopy Growth Soars On Unexpected Guidance Update, European Acquisition