Beer Demand Slumps, Margins Squeezed: Why This Analyst Still Likes Constellation

Needham analyst Gerald Pascarelli reiterated the Buy rating on Constellation Brands, Inc. STZ, lowering the price forecast from $215 to $195.

Pascarelli predicts Constellation Brands will report a weak start to fiscal year 2026 when it announces first-quarter results on July 1.

The analyst expects beer revenue and margins to fall below the lower end of full-year guidance, which could negatively impact Street estimates.

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Over the past three months, beer volumes have declined sequentially, Hispanic consumer sentiment hasn’t improved, and weather has been unfavorable.

Pascarelli’s beer depletion forecast of -3.0% is 120 bps below the -1.8% consensus.

The analyst has reduced his first-quarter earnings per share estimate to $3.20 and lowered his fiscal year 26 and fiscal year 27 EPS estimates to $12.64 and $13.76, respectively.

Pascarelli’s price forecast drops to $195, implying a ~20% discount to the company’s historical average multiple of ~14x.

The analyst notes that beer volume trends weakened since February due to category softness, ongoing consumer challenges, and poor weather in May and early June.

With volumes down over 1% in scanner data, Pascarelli models a 3.0% first quarter depletion decline and 2.0% shipment drop, partially offset by 1.5 points of price. This yields a -0.5% organic sales estimate, 30 bps below consensus.

Increased investment spending, especially in marketing (estimated at 9.5% of sales), and volume pressure contribute to a 38.0% beer margin forecast, notably below the Street’s 39.8%.

Pascarelli is also 10 points below consensus on wine and spirits revenue, expecting a ~30% organic decline. The Svedka divestiture (~5-point hit) further pressured the company.

Volume deleverage and distributor repayments lead him to model a 70% drop in segment operating income.

The analyst’s $3.20 EPS forecast is ~5% below consensus at $3.37.

Pascarelli sees that despite a weak start to fiscal year 26, Constellation Brands’ initial beer guidance was conservative enough to allow the company to meet its full-year targets.

The analyst points out that Constellation Brands typically avoids revising guidance in the first quarter. During May and June presentations, management suggested they expected improved trends after the first quarter, helped by easier year-over-year comparisons and a soft category performance last summer.

While management may opt to reiterate current guidance and wait to reassess in July or August, Pascarelli doubts this approach will be well-received, as investors may question the achievability of full-year goals given the sluggish performance in June.

Price Action: STZ shares are trading lower by 1.7% to $161.71 at last check on Wednesday.

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