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Constellation Brands Inc., whose Modelo Especial has overtaken Anheuser-Busch InBev’s Bud Light to become the best-selling beer in the U.S., will report fiscal first-quarter earnings on Friday, and beer is expected to be top of mind for investors.
Modelo Especial accounted for 8.4% of U.S. beer sales in the four weeks ending June 3, according to beer-industry tracker Bump Williams Consulting, which analyzed Nielsen data for the figures. For Bud Light, that figure stood at 7.3%.
JPMorgan analysts raised their revenue estimates for Constellation’s
STZ,
beers by 100 basis points to 7.5%, they wrote in a recent note, and think consensus beer depletion estimates of up 4.3% “appear conservative in light of solid tracked channel data (from some vendors) and constructive commentary from CEO [Bill] Newlands.”
Beer depletions, a metric that measures the number of cases sold by distributors to retailers, was up 6.3% in the fourth quarter, which was an improvement over the growth of 5.7% posted in the third quarter but still below the growth of 8% to 9% seen in the preceding four quarters.
For more, see: Constellation Brands’ stock gains checked as analyst frets the days of double-digit growth in beer sales are over
Weakness in the beer category dominated questions on Constellation’s last two quarterly earnings calls and weighed on the stock price last year.
Now something has changed, according to JPMorgan and other equity-research analysts.
“Over the past few months, [Constellation] has shifted from negative investor sentiment to a relatively crowded long, which aligns with how we’ve been thinking about the shares over the past couple of quarters,” JPMorgan analysts wrote last week as they raised their stock-price target to $273 from $257. JPMorgan has an overweight rating on the stock, the equivalent of buy.
The valuation is also still attractive, with shares trading at 18 times calendar 2024 price/earnings, excluding the Canopy Growth Corp. investment, compared with Molson Coors Beverage Co.
TAP,
which is trading at 15 times “despite more durably strong fundamental outlook (22% premium vs. [two-year]average 58%),” they wrote.
See now: Anheuser-Busch InBev share price skids as Bud Light and other Budweiser brand sales deteriorate
Modelo Especial’s gains come amid a backlash against Bud Light
BUD,
that began in April in response to its partnership with trans influencer Dylan Mulvaney.
Bud Light sales plunged roughly 24% year over year for the week ending June 3, although Bud Light is still the top-selling beer overall through the first five months of the year.
“Bud Light retains the title — but Modelo Especial is making a run for the title for calendar 2023,” Bump Williams, the consulting company’s president and chief executive, told MarketWatch in an email.
Other observers of industry sales have also noted Modelo’s usurping of Bud Light. In early June, CBS News, citing data from Circana, reported that Modelo Especial was the nation’s bestseller by dollar amount in May.
“It does appear that [Constellation] too has benefitted from Bud Light’s challenges, despite being a less direct competitor than other Domestic Premiums,” said UBS analysts in a note published Monday.
“Meanwhile, the latest week of scanner data suggests that Modelo Oro eclipsed $2 million in sales, with industry experts generally alluding to a strong launch at retail,” they added.
UBS, which rates Constellation’s stock a buy, raised its price target to $296 from $280.
The positive beer news will weigh against more bad news from Canopy Growth
CGC,
WEED,
the Canadian cannabis company in which Constellation invested $4 billion back in 2018, as Canada was gearing up to become the first G-7 country to fully legalize cannabis for adult recreational use.
Despite that substantial sum, Canopy has struggled to make money ever since for a variety of reasons, including massive oversupply of product and a shortage of retail outlets early on.
Last week, Canopy added “going-concern” language to its latest quarterly update, in which it said it has cut 1,200 jobs in the last year.
Constellation said it does not plan to provide any more capital to Canopy Growth but it will retain its ownership stake in the company.
For more, see: Canopy Growth cuts 1,200 jobs in past year and issues ‘going concern’ warning as analyst eyes solvency of cannabis company
Constellation Brands is expected to post per-share earnings of $2.83 for the quarter to May 31, up from $2.33 a year ago, according to FactSet.
Sales are expected to grow to $2.474 billion from $2.027 billion.
Estimize, which crowdsources estimates from buyside and sell-side analysts, academics and individuals, is expecting EPS of $2.89 and sales of $2.493 billion.
The average rating on the stock from FactSet analysts is buy, with 13 of 18 analysts rating it as buy or equivalent and the remaining five rating it as a hold.
The stock has gained 6% in the year to date, while the S&P 500
SPX,
has gained 14%.
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