Valens Equity Weekly Insights - 2024 07 09
Constellation Brands (STZ) has transformed its profitability profile through its massive expansion in the beer market and move to premiumization over the last seven years. Uniform Accounting highlights that the market is pricing in a reversal of recent profitability expansion and below-average growth, but management is confident about executing on their strategy and is aligned to continue to do so, signaling the potential for equity upside as the company continues executing.Constellation has consistently improved its returns since 2014, when it acquired Grupo Modelo's U.S. operations. Since then, the company has significantly expanded its presence in the profitable beer market, and more recently, it has specifically focused on attacking the premium slice of all the segments of the alcohol market. All of this has driven significant growth and profitability expansion, and it has the momentum to continue doing so both in beer, wine, and spirit. If the company is able to continue executing, it should be able to beat market expectations.
STZ's management is closely aligned to focus on margins, asset efficiency, and growth the three main drivers for profitability expansion and key to Constellation's equity upside scenario.
Management confidence in the Q4 earnings call about its debt management and growth of its nonalcoholic beer products suggests management is positioned to execute above market expectations.
Constellation Brands is an international beverage alcohol company. The company is a producer and marketer of beer, wine and spirits with operations in the U.S., Mexico, New Zealand, Italy and Canada. The company has two segments: Beer, in which the company is engaged in the U.S. beer market that includes the imported, craft, domestic super premium, and alternative beverage alcohol categories and it has the right to import, market and sell these Mexican beer brands in the U.S.; and Wine and Spirits, in which its wine portfolio is supported by grapes purchased from independent growers, primarily in the U.S., New Zealand and Chile, and vineyard holdings in the U.S., New Zealand and Italy.
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