S&P 500 may face selling pressure as systematic funds reach full exposure
On Thursday, Evercore ISI analyst Robert Ottenstein adjusted the price target for Constellation Brands (NYSE:STZ) stock, lowering it to $225 from the previous target of $250, while maintaining an Outperform rating. The adjustment comes as the stock has declined over 27% in the past six months, trading at $179. According to InvestingPro data, the company appears undervalued based on its Fair Value analysis, despite trading at relatively high earnings multiples. Ottenstein highlighted a decline in tracked channel volumes, which were down 2.1% over the fourth fiscal quarter compared to a 5.7% increase in the third fiscal quarter. The analyst pointed to several factors that may be influencing this trend.
One significant factor mentioned was the impact on the Hispanic consumer following the election of former President Trump. With Constellation Brands’ volume being approximately 50% reliant on Hispanic consumers, compared to the beer industry’s average of around 25%, the firm believes this demographic is experiencing outsized pressure, which could be contributing to the volume weakness. Despite these challenges, InvestingPro data shows the company has maintained a solid 3.7% revenue growth over the last twelve months, with a robust gross profit margin of 51.5%. Additionally, recent adverse weather conditions across the country and the LA fires were noted as potential contributors to the decline in volume performance.
The uncertainty surrounding tariffs also poses questions for Constellation Brands. The analyst’s policy team remarked that beer is currently not subject to tariffs from any country under the US Most Favored Nation (MFN) tariff schedule and is also exempt under the USMCA. However, it remains unclear how quickly Constellation Brands can transition their paperwork to claim zero tariffs under USMCA, which now specifically requires the exemption, and how much of the company’s cost of goods sold (COGS) are value-added within Mexico. To meet the requirements, generally, 50-60% of the value-added of a good must be done within North America.
The report from Evercore ISI reflects the complexities faced by Constellation Brands in the current economic and political climate. The company’s stock price target adjustment takes into account the recent volume performance and the ongoing uncertainties regarding tariff exposure. As the situation develops, Constellation Brands may need to navigate these challenges to maintain its Outperform rating and reach the revised price target set by Evercore ISI.
In other recent news, Constellation Brands has faced several adjustments in analyst ratings and price targets. Bernstein has lowered its price target for Constellation Brands to $230 due to new tariffs on Mexican imports, which are expected to significantly impact the company’s earnings per share (EPS). Despite the reduced EPS forecast, Bernstein maintains an Outperform rating, noting the potential for a positive shift if the tariff situation is resolved. Similarly, Morgan Stanley (NYSE:MS) downgraded Constellation Brands from Overweight to Equal-weight, citing concerns about the long-term growth prospects of the beer segment and adjusting the price target to $202.
TD Cowen also reduced its price target to $200, maintaining a Hold rating and expressing concerns about potential tariffs and a slowdown in beer consumption. RBC Capital Markets, however, remains optimistic, maintaining an Outperform rating and slightly adjusting the price target to $289, emphasizing the company’s achievements despite challenges. The firm suggests that current share values may have already accounted for the tariff impacts, presenting a potential opportunity for investors.
These developments reflect the broader challenges Constellation Brands faces, including tariffs, changing consumer preferences, and market dynamics. Investors are closely watching the company’s strategies to navigate these headwinds and the potential implications for its financial performance.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.