Options Trade – Constellation Brands, Inc. (NYSE:STZ) Calls
Sunday, September 28, 2014

**OPTIONS TRADE: Buy the STZ Jan 2015 90.000 call (STZ150117C00090000) at or under $2.50, good for the day. Place a protective stop loss at $1.00 and a pre-determined sell at $4.50.

by Ian Harvey

September 28, 2014


Constellation Brands, Inc. (NYSE: STZ), together with its subsidiaries, produces, imports, and markets beer, wine, and spirits in the United States, Canada, Mexico, New Zealand, and Italy, will report second-quarter results before the market open on October 2nd . The consensus estimate for the quarter is $1.15 per share, up from $0.96 during the same period last year. For the previous quarter, the company reported higher-than-expected quarterly revenue, helped by increased sales of its beer brands such as Corona and Modelo.

The stock has enjoyed strong gains in 2014, with shares of Constellation Brands up at 25.01 % since the start of the year.

Constellation Brands continue to perform well, but in recent months the stock has appeared to hit a ceiling, which it has tried and failed several times to break through. A strong earnings report should send the stock to new highs. Looking at its recent earnings history suggests a positive earnings surprise could be on the horizon. The company has outpaced analyst estimates four quarters in a row, and seven out of the last eight quarters. Not only do analysts expect earnings to grow 20% for the most-recent quarter, estimates peg full year earnings growth of 31% and 11% next year.

Technical Details

STZ was recently trading at $87.96, down $6.81 from its 12-month high and $31.47 above its 12-month low. Technical indicators for STZ are bullish and the stock is in a weak upward trend. The stock has support above $85.50 and has resistance below $88.45.


The term earnings per share (EPS) represents the portion of a company’s earnings, net of taxes and preferred stock dividends, that is allocated to each share of common stock. The figure can be calculated simply by dividing net income earned in a given reporting period (usually quarterly or annually) by the total number of shares outstanding during the same term. Because the number of shares outstanding can fluctuate, a weighted average is typically used. EPS is a carefully scrutinized metric that is often used as a barometer to gauge a company’s profitability per unit of shareholder ownership. As such, earnings per share are a key driver of share prices. It is also used as the denominator in the frequently cited P/E ratio.

Constellation Brands offered 52.90% EPS for prior five years. The company has 42.90% return on equity value while its ROI ratio was 18.20%. The company has $ 16.79B market capitalizations and the institutional ownership was 88%. Its price to book ratio was 3.16. Volatility of the stock was 1.19% for the week while for the month booked as 1.19%.

Constellation Brands last released its earnings data on Wednesday, July 2nd. The company reported $1.07 earnings per share (EPS) for the quarter, beating the consensus estimate of $0.93 by $0.14. The company had revenue of $1.53 billion for the quarter, compared to the consensus estimate of $1.41 billion.

During the same quarter in the previous year, the company posted $0.38 earnings per share. The company’s revenue for the quarter was up 126.7% on a year-over-year basis. On average, analysts predict that Constellation Brands will post $4.25 earnings per share for the current fiscal year.

Analysts Opinions

Investment analysts at Cowen and Company started coverage on shares of Constellation Brands in a note issued to investors on Monday, 15th September. The firm set a “market perform” rating and a $88.00 price target on the stock. Cowen and Company’s price target indicates a potential upside of 1.21% from the company’s current price.

The company has also been the subject of a number of other research reports:-

• Analysts at RBC Capital downgraded shares of Constellation Brands from an “outperform” rating to an “underperform” rating in a research note on Friday, September 5th.

• Separately, analysts at Credit Suisse initiated coverage on shares of Constellation Brands in a research note on Thursday, August 14th. They set a “neutral” rating and a $90.00 price target on the stock.

• Finally, analysts at JPMorgan Chase & Co. reiterated a “neutral” rating on shares of Constellation Brands in a research note on Thursday, July 3rd. They now have a $95.00 price target on the stock, up previously from $82.00.

One equities research analysts have rated the stock with a sell rating, one have issued a hold rating, two with a buy rating and three have given a strong buy rating to the company’s stock. Constellation Brands has an average rating of “Hold” and an average target price of $97.00.


Constellation Brands continues to deliver solid results, and it is expected that the stock will move higher following its Q2 report.

Therefore, based on the facts above the following options trade is recommended…..

**OPTIONS TRADE: Buy the STZ Jan 2015 90.000 call (STZ150117C00090000) at or under $2.50, good for the day. Place a protective stop loss at $1.00 and a pre-determined sell at $4.50.

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