BMO cuts Constellation Brands target to $215, maintains Outperform

On Friday, BMO Capital Markets adjusted its outlook on Constellation Brands stock (NYSE:STZ), reducing the price target from $260.00 to $215.00 while still maintaining an Outperform rating on the company's shares. The stock, currently trading at $183.04, appears undervalued according to InvestingPro analysis, with analyst targets ranging from $165 to $300. The adjustment by BMO analyst Andrew Strelzik comes after a series of updates from the beverage giant.

Constellation Brands recently reported its fourth-quarter earnings for fiscal year 2025, posting earnings per share (EPS) of $2.63, which surpassed the consensus estimate of $2.28. The positive outcome was attributed to a combination of better-than-expected Beer margins, a stronger performance in the Wine segment, and reduced corporate expenses, including interest and taxes. Despite softer Beer sales, these factors helped the company exceed market expectations. InvestingPro data shows the company maintains a healthy 52.16% gross profit margin and has achieved 2.48% revenue growth over the last twelve months.

However, Constellation Brands has provided EPS guidance for fiscal year 2026 that falls below the consensus, citing a challenging consumer environment and the impact of tariffs. The guidance is set at $12.60 to $12.90, compared to the consensus estimate of $13.45. This includes the dilutive effect of the company's decision to divest some of its wine brands. InvestingPro reveals that 9 analysts have recently revised their earnings estimates downward, though the company maintains a GOOD overall financial health score.

Moreover, the company has also provided guidance for fiscal years 2027 and 2028 that is below its previous medium-term outlook. The revised outlook reflects the anticipated challenges and impacts in the coming years. Despite these challenges, the company offers a 2.19% dividend yield and has maintained a strong dividend growth track record.

In a significant move, Constellation Brands announced the divestiture of its mainstream wine brands, which is expected to bring in proceeds of approximately $900 million. This strategic decision is part of the company's efforts to realign its portfolio and focus on its core growth areas. With a market capitalization of $33.04 billion, this divestiture represents a strategic shift for the beverage giant.

Despite the lowered estimates and the revised guidance, BMO Capital Markets analyst Strelzik believes in the company's long-term potential, as evidenced by the maintained Outperform rating. The recent developments and strategic decisions by Constellation Brands will continue to shape its trajectory in the competitive beverage industry.

In other recent news, Constellation Brands reported its fiscal Q2 2025 earnings, revealing a stronger-than-expected performance. The company achieved earnings per share of $2.63, surpassing the forecasted $2.33, while revenue reached $2.16 billion, slightly above the anticipated $2.15 billion. This performance was driven by robust growth in the beer segment, particularly for Corona and Pacifico brands. In a strategic move, Constellation Brands also divested part of its wine portfolio, aiming for significant cash flow generation from fiscal 2026-2028. Meanwhile, Citi analyst Filippo Falorni adjusted the price target for Constellation Brands, reducing it to $190 from $200 but maintaining a Neutral rating. This revision was influenced by a reduction in the company's medium-term forecast and concerns over negative near-term beer trends. Despite these challenges, Constellation Brands continues to focus on expanding distribution and disciplined innovation to drive future growth. The company also plans to generate $9 billion in operating cash flow and $6 billion in free cash flow from fiscal 2026-2028.

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