uploads///stz pm

Inside Barclays’ Raised Price Target for Constellation Brands

By

Apr. 8 2016, Published 2:08 p.m. ET

Price movement of Constellation Brands

Constellation Brands (STZ) has a market cap of $31.0 billion. STZ fell by 1.9% to close at $157.37 per share on April 7, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were 4.2%, 12.4%, and 10.7%, respectively.

On the same day, STZ was trading 6.3% above its 20-day moving average, 8.6% above its 50-day moving average, and 17.1% above its 200-day moving average.

Inside Barclays' Raised Price Target for Constellation Brands

Article continues below advertisement

ETFs and competitors

The iShares Russell 3000 ETF (IWV) invests 0.08% of its holdings in Constellation Brands. The ETF tracks a cap-weighted index that measures the investable US equities market, covering the entire market-cap spectrum, including micro-caps. The YTD price movement of IWV was 1.3% as of April 6, 2016.

The market caps of Constellation Brands’ competitors are as follows:

  • Anheuser-Busch InBev (BUD)—$191.8 billion
  • Altria Group (MO)—$124.2 billion
  • Molson Coors Brewing (TAP)—$19.6 billion

Barclays’ price target and Constellation’s 4Q16 and 2016 performance

Barclays has increased Constellation Brands price target to $170 from $160 per share and has maintained its “overweight” rating after the rise in performance in fiscal 2016.

Constellation Brands reported fiscal 4Q16 net sales of ~$1.54 billion, a rise of 13.8% compared to net sales of ~$1.35 billion in fiscal 4Q15. It reported earnings from unconsolidated investments of $22.6 million in fiscal 4Q16, as compared to $0.4 million in fiscal 4Q15.

Its net income, EPS (earnings per share) of Class A common stock, and EPS of Class B convertible common stock rose to $243.4 million, $1.19, and $1.10, respectively, in fiscal 4Q16. This compares to $214.6 million, $1.06, and $0.98, respectively, in fiscal 4Q15.

During fiscal 4Q16, the company repurchased ~246,000 shares of common stock for $34 million.

Article continues below advertisement

Fiscal 2016 results

In fiscal 2016, Constellation Brands reported net sales of $6.5 billion—a rise of 8.6% YoY (year-over-year). It reported a $1.1 million loss on write-off of debt issuance costs in fiscal 2016, compared to $4.4 million in fiscal 2015.

Its net income, EPS of Class A common stock, and EPS of Class B convertible common stock rose to $1.1 billion, $5.18, and $4.79, respectively, in fiscal 2016, compared to $839.3 million, $4.17, and $3.83, respectively, in fiscal 2015.

STZ’s cash and cash equivalents fell by 24.5%, and its inventories rose by 1.3% in fiscal 2016. Its current ratio and debt-to-equity ratio fell to 1.3x and 1.5x, respectively, in fiscal 2016, as compared to 2.6x and 1.6x, respectively, in fiscal 2015.

Projections

The company has made the following projections for fiscal 2017:

  • EPS in the range of $6.05–$6.35 on a comparable basis and $6.00–$6.30 on reported basis
  • interest expense in the range of ~$325 million–$335 million
  • tax rate of ~29%
  • free cash flow in the range of ~$250 million–$350 million
  • capital expenditure in the range of ~$1.25 billion–$1.35 billion

The company has declared a quarterly cash dividend of $0.40 per share of Class A common stock and $0.36 per share of Class B common stock. The dividend will be paid on May 24, 2016, to shareholders on record as of the close of business on May 10, 2016.

Constellation Brands has agreed to acquire the Prisoner Wine Company’s portfolio of brands from Huneeus Vintners. The portfolio of brands includes five fine wine brands led by the Prisoner, a super luxury wine, and Saldo, Cuttings, Blindfold, and Thorn. This transaction will likely be closed at the end of April.

In the next part, we’ll take a look at Hasbro.

Advertisement

More From Market Realist