Analysts are adjusting their price targets for Constellation — here's why we're on board

Published Mon, Jul 3 202312:29 PM EDT

Wall Street praised Constellation Brands (STZ) in a series of price target hikes to start the new week and quarter. The moves followed the Corona and Modelo brewer's strong quarterly report Friday and our own Club price-target bump. Here's what all the fuss is about. We boosted our Club price target on Constellation on Friday to $270 per share from $260. That's just under 23 times the midrange of management's full-year-earnings forecast. The company delivered compelling forward guidance and a fiscal 2024 first-quarter beat on earnings and revenue. Not surprisingly, the research analysts needed to update their models. BMO Capital increased price target to $290 from $263 Wells Fargo increased price target to $280 from $275 Bernstein increased price target to $287 from $280 JPMorgan raised price target to $276 from $273 Goldman Sachs raised price target to $275 from $264 Wedbush increased price target to $275 to $270 TD Cowen increased price target to $240 from $220 Truist raised price target to $240 from $220 The common theme, as we also pointed out, is the company's unrelenting beer momentum as the main factor that should drive the company's future growth. U.S.-based Constellation — which makes popular Mexican beers including Pacifico, Corona and Modelo —delivered a $42 million revenue beat of $2.52 billion in its fiscal first quarter, while earnings-per-share of $2.91 were 8 cents above consensus. Modelo Especial became the No. 1 beer in America in dollar sales during the quarter while other core brands Corona Extra and Pacifico also achieved share gains as many Bud Light drinkers boycotted over a marketing campaign with a transgender influencer. Constellation delivered resilient beer depletions, also known as the number of cases that are sold to retailers by a distributor. However, the number was a tad short of estimates. The month of March was challenging due to poor weather in California, the largest market for the company. But management reiterated positive trends into their fiscal second quarter, calming fears of lower-than-anticipated beer depletions going forward. Management also left their fiscal full-year guidance unchanged, but it was still higher than analysts' expectations for a softer outlook. Bottom Line Constellation's strong start to its fiscal year gives investors confidence that the company is well-positioned regardless of where the economy goes. We own STZ for its recession-resistant qualities. People tend to drink alcohol no matter the economic climate. We were glad to see Wall Street analysts follow our price target increase. Management's decision to reiterate guidance was a conservative move but a prudent one given the uncertainty surrounding consumer strength and the health of the U.S. economy. It also sets the company up to potentially underpromise and overdeliver, which would be a catalyst for the stock toward the second half of the year. As for the first half of the year, Constellation shares have been a bright spot in the consumer staples sector, up 7% year to date. The stock arguably has more room to run as it continues to gain share through brand switching in the wake of the Bud Light controversy. Overall, Constellation once again exhibited an ability to deliver reliable free cash flow and continued success, setting it up for a robust summer that should lead to another positive quarter and fiscal year. (Jim Cramer's Charitable Trust is long STZ. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Corona beer, owned by Constellation Brands.

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