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What to Expect from Constellation Brands’ Q1 Earnings

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Today, Jefferies raised its target price for Constellation Brands (NYSE:STZ) stock before the company’s first-quarter results. Jefferies increased its target price to $224 from $215. Constellations Brands is one of the leading beer, wine, and spirits producers. So far, the stock has declined by 8.2% in 2020.

Constellation Brands will likely announce its results for the first quarter of fiscal 2021 on July 1. The company’s fiscal first quarter, which ended on May 31, will show how COVID-19 has impacted the business.

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Forecast for Constellation Brands’ Q1 earnings

Constellation Brands benefited from customers stocking up on alcoholic beverages in March amid the COVID-19 lockdowns. However, the company lost sales from on-premise channels. Restaurants and bars suspended dine-in-services due to social distancing mandates to curb the spread of COVID-19. Historically, the on-premise business has accounted for 10%–15% of the company’s depletion volumes for beer, wine, and spirits.

Analysts expect Constellation Brands’ first-quarter sales to decline 5.8% YoY (year-over-year) to $1.98 billion. They expect the company’s adjusted EPS to fall 9.1% YoY to $2.01. Lower sales and margin pressure due to COVID-19 related expenses could drag down the earnings. Molson Coors’ (NYSE:TAP) sales fell 8.7% YoY to $2.10 billion. The amount reflected the impact of COVID-19 in the first quarter. Molson Coors’ adjusted EPS declined by 32.7% to $0.35.

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Constellation Brands ended fiscal 2020 with better-than-expected fourth-quarter results. The company’s fourth-quarter sales rose 5.9% YoY to $1.90 billion. Also, the fourth-quarter adjusted EPS increased 12% to $2.06. Analysts expected an EPS of $1.65 and sales of $1.84 billion. However, COVID-19 didn’t impact the fourth quarter of fiscal 2020, which ended on February 29.

Constellation Brands didn’t issue any guidance for fiscal 2021 due to uncertainty associated with the pandemic.

Long-term prospects look promising

Constellation Brands’ beer business has popular Mexican brands like Corona and Modelo. The wine and spirits portfolio includes premium brands like Meiomi, Kim Crawford, Prisoner, and Svedka. The company has been divesting low-margin brands and focusing on higher-margin products to enhance its profitability. Constellation Brands has also been innovating several beverages based on consumers’ choices. The company wants to capture growth in the hard seltzer category.

Constellation Brands has been looking for growth prospects in the cannabis space through its significant investment in Canopy Growth (NYSE:CGC)(TSE:WEED). In May, the company increased its stake in Canopy Growth to 38.6% by exercising its warrants. The company thinks that Canopy Growth is well-positioned to capture the opportunities in the emerging cannabis market.

Ahead of the first-quarter results, 65% or 13 out of 20 analysts have a “buy” recommendation for Constellation Brands stock. Six analysts recommend a “hold,” while one recommends a “sell.” With a target price of $188.89, analysts see an upside of 8% over the next 12 months. Aside from sales updates for the off-premise and on-premise channels, investors will watch for any production disruption in the company’s Mexican facilities.

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