by Ian Harvey
July 02, 2020
Shares of Constellation Brands were up 8.56% intraday yesterday after reporting Wednesday morning. Its results gave confidence in its ability to stay the course through tough times.
And, Stock Options Made Easy “Earnings Predictions” Members were well-positioned to benefit; and made 210% potential profit based on a CALL OPTIONS trade so far. More could be likely!
Constellation shares were up $14.97 (+8.56%) during the trading day; finally closing up $10.93 (+6.25%).
Constellation Brands beat analysts' revenue and earnings expectations despite the continued drag of its investment in Canadian marijuana producer Canopy Growth (NYSE:CGC).
Constellation Brands posted fiscal first-quarter comparable earnings of $2.03 per share, which increased 4% year over year and beat the Consensus Estimate of $1.91. The reported figure included Canopy Growth equity loss of 15 cents. Excluding the impacts of Canopy Growth, the company posted earnings of $2.44 per share, which grew 2% from the year-ago quarter.
Net sales declined 6.4% to $1,963.4 million and missed the Consensus Estimate of $1.97 billion.
With this, the company has reported earnings beat for the 10th consecutive quarter. Despite the impacts of the coronavirus outbreak, results have been primarily aided by robust depletions and strength in the off-premise channel.
"We overcame a number of headwinds to deliver solid first quarter results marked by margin improvement and impressive depletion growth for our beer business and our wine and spirits Power Brand portfolio," said CEO Bill Newlands in a statement.
Constellation's operating margin increased by 240 basis points year over year to 41.7% thanks to "benefits from marketing spend and favorable pricing," though those were partially offset by higher raw material costs, the company said.
In the past three months, shares of Constellation Brands rallied 33.3% compared with the industry’s 14.7% growth.
“Earnings Predictions” Members executed a call options trade on Constellation Brands shares on Monday, June 29, 2020, at a cost of $5.20; and the sell value of the option hit $16.10 yesterday – a potential profit of 210%.
More profit might be available for those traders that wish to continue to hold as there are still 16 days to go before expiry.
The recommended options trade for “Earnings Predictions” Members.....
** OPTION TRADE: Buy STZ JUL 17 2020 175.000
CALL at approximately $5.20.
The Recommended Trade…..
“The beer and spirits specialist, Constellation Brands, Inc. Class A (NYSE: STZ), will report earnings before the market opens. The consensus earnings estimate is for $1.91 per share on revenue of $1.97 billion; but the Whisper number is higher at $2.12 per share.
Consensus estimates are for earnings to decline year-over-year by 13.57% with revenue decreasing by 13.69%.
For the last reported quarter, it was expected that Constellation Brands would post earnings of $1.62 per share when it actually produced earnings of $2.06, delivering a surprise of +27.16%.
Over the last four quarters, the company has beaten consensus EPS estimates four times.
Constellation Brands has seen an impressive streak of market share gains heading into the pandemic as consumers flocked toward its premium brands like Corona and Modelo. More success there, combined with its recent release of a hard seltzer, could lift Constellation Brands' consumption volumes, especially at retail partners like supermarkets and warehouse clubs.
Harris Associates' Bill Nygren highlighted Constellation Brands for investors to buy right now.....
....."Another stock we added was Constellation Brands [STZ], the large importer of popular Mexican beer labels, including Modelo, Pacifico, and to their misfortune, Corona. The big market concern seemed to be that people are not going to bars any more, which is true, but we concluded that the 15% of Constellation’s sales from restaurants and bars could be largely offset by increased consumption at home. We think it’s very possible earnings won’t go down at all even this year, but the stock price had been cut in half. That made it interesting to us."
The stock had been down nearly 50% as the broader market dived in early March, but shares are up over 50% in the last three months.
Constellation Brands has been witnessing strength in the beer business owing to a rise in shipment volumes and favorable depletion trends. Continued strength in the Modelo and Corona brand families and constant innovation has been driving portfolio depletions and market share gains.
The company’s wine & spirits
premiumization strategy is yielding results, as evident from the recent
acceleration in depletions for the power brands, namely Kim Crawford, Meiomi
and The Prisoner Brand Family.
Constellation Brands constant focus on brand building and initiatives to include new products bode well. The company is likely to have benefited from growth in the hard seltzer category as it recently launched the Corona hard seltzer.
The off-premise businesses, such as grocery and convenience stores, are witnessing improved demand trends.
JPMorgan analyst Andrea Teixeira reiterated an Overweight rating on Constellation Brands last Wednesday, while raising her price target to $200 from $163. She added the shares to her firm’s Analyst Focus List as a top growth idea.
"We expect share gains for its Modelo and Corona brand families (including hard seltzer) to accelerate (lower on-premise dependence) as Mexico beer production normalizes. We also anticipate visibility to improve with the recently announced equity income impact from Canopy Growth and revised wine deal with Gallo, which likely enhances STZ’s narrative."
The firm's FQ1 EPS estimate moves to $1.99 vs. $2.10 prior and $2.07 consensus, while the FY21 EPS increases to $8.36 vs. $7.96 prior. Constellation Brands has a pretty good recent track record of topping profit estimates.
JP expects greater visibility on a number of key items for Constellation Brands, including top-line growth, on- vs. off-premise consumption and production.
Several other analysts have commented on the stock.....
Goldman Sachs Group reiterated a “buy” rating and issued a $165.00 price objective on shares of Constellation Brands in a report on Wednesday, April 1st.
SunTrust Banks reiterated a “buy” rating and issued a $200.00 price objective on shares of Constellation Brands in a report on Monday, April 6th.
Zacks Investment Research upgraded Constellation Brands from a “hold” rating to a “buy” rating and set a $179.00 price objective on the stock in a report on Monday, June 15th.
Royal Bank of Canada reiterated a “buy” rating and issued a $216.00 price objective on shares of Constellation Brands in a report on Thursday, June 4th.
Finally, UBS Group upgraded Constellation Brands from a neutral rating to a buy rating in a research report on Sunday, April 19th.
Two equities research analysts have rated the stock with a sell rating, eight have given a hold rating and fourteen have assigned a buy rating to the company’s stock. The stock presently has an average rating of “Buy” and an average target price of $192.14.
It is expected that management will highlight continued market share strength for core beer franchises like Corona and Modelo, as well as the retailing strength of its new Corona hard seltzer launch.”
Solid portfolio depletions and market share gains mainly stemmed from continued strength in the Modelo and Corona Brand Families. Depletions for the Modelo Brand Family increased 12%.
The popularity of its Corona Hard Seltzer helped push consumption higher in its broader beer portfolio despite a 75% drop in sales to restaurant and bar partners that were under lockdown conditions for most of the period, management said.
Constellation Brands said the hard seltzer, which launched earlier this year, has already become the fourth-biggest hard-seltzer brand, with 6% market share in the U.S.
"We continue to win in sales channels that are open," CEO Bill Newlands said, including supermarket chains and convenience stores.
The company also said it acquired Empathy Wines, a direct-to-consumer wine brand co-founded by entrepreneur Gary Vaynerchuk.
Empathy sells "sustainable wines" sold via an e-commerce platform using digital marketing with a $20 per bottle price point. The brand has sold about 15,000 cases of wine since it was launched in 2019.
Driven by the potential impacts of the coronavirus outbreak, the company is not able to provide guidance for fiscal 2021.
And, for the beer segment, it expects the slowed beer production in Mexico due to the COVID-19 outbreak to continue hurting shipments and distribution inventory in the fiscal second quarter. However, product inventories are likely to return to normal levels in the fiscal third quarter. As well, the company’s long-term outlook for the beer business remains unchanged.
MKM Partners analyst Bill Kirk, who has a Sell rating on Constellation Brands stock with a $147 price target, noted beer depletion growth—an industry metric for how fast beer leaves the distributor to retailers—was better than anticipated at 5.6%. But shipments were down 7.2%.
“Shipments were slightly worse than announced, but depletions slightly better,” he wrote in a Wednesday note. “The most important aspect of the report was earnings resilience in the face of negative Beer shipments.”
Constellation sees better times ahead, and recent strategic moves to streamline its business and concentrate on its best core opportunities could continue to lift the share price.
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An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.
It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!