Elliott Partnership & Easier Comps: Why STZ Is In 'Best Ideas List' For Wedbush In The Brewing Landscape

Wedbush analyst Gerald Pascarelli reiterated an Outperform rating on the shares of Constellation Brands Inc STZ and raised the price target from $275 to $300.

The analyst added STZ to the Wedbush Best Ideas List (BIL).

STZ reports 2Q FY24 earnings on Thursday, October 5, before the market opens.

For the quarter, the analyst is modeling for beer revenue growth of 9.7% on 7.5% shipments/ depletions and about 2 points of pricing. 

Margins will likely remain under pressure due to outsized levels of input cost inflation, with margins to be

broadly in line with what the company delivered last quarter (~38%), which should improve in the back half of the year, the analyst noted.

Looking at the setup for the remainder of the year, the analyst believes that STZ should be in a position to modestly raise its beer guidance.

After 2Q24, STZ will be facing considerably easier revenue and profit comps for beer, which the analyst sees to benefit the company in the back half of the year. 

.After what will be two consecutive years of beer operating margin coming in below STZ's 39%-40% target, margins should start to improve in the back half of 2024 and continue into fiscal 2025, noted the analyst.

The recently announced partnership with Elliott Management should further strengthen the company's corporate governance structure and de-risk the potential for company and shareholder interests to become misaligned, opined the analyst.

The analyst sees multiple upcoming catalysts on the horizon for STZ, adding to overall conviction on the company's ability to continue to outperform and drive strong topline and earnings growth, while unlocking multiple expansion.

Price Action: STZ shares are trading lower by 0.72% at $246.84 on the last check Tuesday.