Constellation Brands, Inc. (NYSE:STZ) was among the stocks Jim Cramer reviewed on Mad Money while discussing the recent market rotation. Cramer noted that he never thought he would “ever see Constellation Brands this cheap,” as he commented:
Constellation reported last Wednesday night, and on the surface, it was a silently mixed quarter… We’ve started seeing signs of stabilization in the broader alcohol space for once… When I see Constellation Brands roaring after a not-so-hot quarter, it tells me that Wall Street’s starting to believe in this group, too. Again, the overall numbers here, they weren’t really particularly strong… So why the heck did Constellation make such a huge comeback last Thursday? Let’s start with the quarter itself. Not only were the headline numbers better than feared, but we also spotted some green shoots in the all-important beer business… And I want to add that Constellation is now under new management…
Doesn’t hurt that the stock is just very cheap, trading at less than 14 times this year’s earnings estimates. Also pays a solid 2.5% dividend yield. I never thought I would ever see Constellation Brands this cheap. How about the broader alcohol business? Earlier this week, an analyst at UBS penned a very thoughtful note about their expectations for the industry. Long story short, UBS still predicts a structural volume decline over the next decade. I get that, but they’re betting that dollar sales will grow at a modest 1.3% pace in the US and higher than that worldwide as people increasingly swap to premium-priced merchandise. That’s a reasonable take, and while I wouldn’t call it rosy, let’s just say it’s a heck of a lot better than when we were hearing about the alcohol business six months ago.
Plus, it’s optimistic enough to make me think that a higher-quality operator can still do pretty well in this environment. Constellation is very high quality. Here’s the bottom line: I’ve been looking very slowly, very cautiously for a potential bottom in the alcohol business. And I keep seeing signs that the turn may already be upon us. That’s why Constellation Brands roared in response to a really lackluster quarter. I’m betting the buyers are right… Constellation may be the beer company worth owning.
Constellation Brands, Inc. (NYSE:STZ) sells beer, wine, and spirits, with beer brands such as Corona, Modelo, Pacifico, and Victoria. Its portfolio also includes wine and spirits labels such as Robert Mondavi Winery, Kim Crawford, The Prisoner Wine Company, and SVEDKA.
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