Valuation rises post Q4 results
Constellation Brands’ (STZ) 12-month forward PE multiple increased 7.2% to 21.2x on April 4, the day the company announced its results for the fourth quarter of fiscal 2019, which ended on February 28. As of April 5, Constellation Brands was trading at a forward valuation multiple of 22.2x. On the same day, peers Anheuser-Busch InBev (BUD) and Molson Coors Brewing (TAP) were trading at lower forward valuation multiples of 18.7x and 12.8x, respectively. However, Brown-Forman (BF.B) was trading at a higher valuation multiple of 30.0x on April 5 compared to Constellation Brands.
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The road ahead
Constellation Brands’ sales grew 7.1% to $8.12 billion in fiscal 2019 primarily due to the company’s strong beer portfolio. The company’s fiscal 2019 adjusted EPS increased 6.7% to $9.28. Analysts expect Constellation Brands’ fiscal 2020 sales to decline 2.0% to $8.0 billion as higher beer sales are expected to be offset by the loss of sales due to the divestiture of 30 wine and spirits brands. Analysts expect Constellation Brands’ adjusted EPS to decline 4.3% to $8.88 in fiscal 2020.
Constellation Brands expects its adjusted EPS to be between $8.50 and $8.80 in fiscal 2020, down from $9.28 in fiscal 2019. This guidance reflects the impact of the divestiture of certain wine and spirits brands but excludes Canopy Growth’s (CGC) equity earnings.
Constellation Brands will now focus on its premium wine and spirits brands. The company is optimistic about its innovation pipeline in the wine and spirits space, including new introductions for Woodbridge Rosé, Robert Mondavi Private Selection, and Rye Barrel-Aged Red Blend.
The company continues to support strong demand for its beer business with capacity expansion. In fiscal 2019, Constellation Brands finished the 30 million hectoliter capacity expansion at its Nava Brewery, which increased its existing capacity (including Obregon facility) to 34 million hectoliters.
Constellation Brands is optimistic about capturing the growth in the cannabis space with its investment in Canopy Growth. The company continues to expect Canopy Growth to deliver 1 billion Canadian dollars in net sales in its next fiscal year supported by more retail stores and the sale of value-added products like edibles and beverages, which are expected to be legalized in Canada this fall.