uploads/2017/01/stz-pm-2.png

What Moody’s Thinks of Constellation Brands?

By

Updated

Price movement

Constellation Brands (STZ) has a market cap of $29.0 billion. It rose 1.2% to close at $149.28 per share on January 13, 2017. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -0.11%, -3.8%, and -2.6%, respectively, on the same day.

STZ is trading 1.9% below its 20-day moving average, 2.9% below its 50-day moving average, and 6.2% below its 200-day moving average.

Article continues below advertisement

Related ETF and peers

The iShares Russell 3000 ETF (IWV) invests 0.12% of its holdings in Constellation Brands. The YTD price movement of IWV was 1.7% on January 13.

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

  • Anheuser-Busch InBev (BUD) — $177.4 billion
  • Molson Coors Brewing Company (TAP) — $20.5 billion

Latest news on STZ

Moody’s Investors Service has upgraded Constellation Brands to the following ratings:

  • senior unsecured notes from Ba1 (LGD4) to Baa3
  • senior unsecured shelf from (P)Ba1 to (P)Baa3

Moody’s has also given the company a “stable” outlook. It reported, “The rating upgrade reflects Constellation’s strong brand portfolio and favorable category trends, and its commitment to manage its net debt/EBITDA leverage to around 3.5x compared to a historical targeted range of 3x to 4x.”

Moody’s added, “The upgrade also reflects Moody’s belief that Constellation has significant financial and operating flexibility to manage risks from the possibility of changing tax legislation and regulation that could apply to it given its reliance on Mexico for its beer production.”

The report continued, “Moody’s expects that Constellation will maintain strong liquidity, characterized by over $1.4 billion in annual operating cash flow and $1.15 billion in revolving credit facilities with substantial borrowing availability.”

Article continues below advertisement

Performance of Constellation Brands in fiscal 3Q17

Constellation Brands reported fiscal 3Q17 net sales of $1.8 billion, a rise of 10.4% compared to its net sales of $1.6 billion in fiscal 3Q16. Organic net sales of its Beer and Wine & Spirits segments rose 16.0% and 4.5%, respectively, in fiscal 3Q17 compared to fiscal 3Q16. The company’s gross profit margin and operating margin expanded 450 basis points and 220 basis points, respectively, in fiscal 3Q17 compared to the prior year’s period.

STZ’s net income, the EPS (earnings per share) of its Class A common stock, and the EPS of its Class B convertible common stock rose to $405.9 million, $1.98, and $1.82, respectively, in fiscal 3Q17, compared to $270.5 million, $1.33, and $1.22, respectively, in fiscal 3Q16. The company’s cash and cash equivalents and inventories rose 137.4% and 14.7%, respectively, between fiscal 3Q17 and fiscal 4Q16.

During fiscal 3Q17, Constellation Brands repurchased 2.4 million shares of its common stock worth of $367 million.

Article continues below advertisement

Quarterly dividend

The company has declared a quarterly cash dividend of $0.40 per share on its Class A common stock and $0.36 per share on its Class B common stock. The dividend will be paid on February 23, 2017, to shareholders of record at the close of business on February 9, 2017.

Projections

Constellation Brands has made the following projections for fiscal 2017:

  • net sales growth of 16.0%–17.0% in its Beer segment, including an incremental benefit from its Ballast Point acquisition
  • net sales growth in the mid–single digits and operating income growth in the mid- to high single digits in its Wine & Spirits segment 
  • EPS of $7.55–$7.65 on a reported basis and $6.55–$6.65 on a comparable basis
  • Free cash flow in the range of ~$575 million–$675 million

In the next and final part of this series, we’ll look at Sonoco Products (SON).

Advertisement

More From Market Realist