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On Thursday, Goldman Sachs reiterated its Buy rating on Constellation Brands (NYSE:STZ) with a steady price target of $260.00. According to InvestingPro data, the company is currently trading below its Fair Value, with analyst targets ranging from $165 to $300. Bonnie Herzog, an analyst at Goldman Sachs, highlighted that Constellation Brands surpassed expectations in both revenue and earnings per share (EPS) for its fiscal year, achieving the higher end of its updated EPS guidance for fiscal year 2025, despite 9 analysts recently revising their earnings expectations downward. Despite these achievements, the focus was shifted by announcements such as the planned divestitures in its Wine business, a projection for softer fiscal year 2026 guidance, and a significantly lowered medium-term outlook. The company maintains strong fundamentals, with InvestingPro analysis showing a "GOOD" overall financial health score and a consistent track record of raising dividends for 10 consecutive years, currently yielding 2.2%.
The company's fourth fiscal quarter success was somewhat overshadowed by concerns regarding its compliance with the United States-Mexico-Canada Agreement (USMCA) amidst recent changes to U.S. trade policies and tariffs. Constellation Brands did not address these compliance questions during the announcement but is anticipated to provide more details during the earnings call scheduled for the following day.
Constellation Brands has decided not to increase pricing to mitigate the tariff risks. Instead, the company plans to maintain its beer pricing algorithm, aiming for a 1-2% increase, as it concentrates on gaining market share. The strategy will involve leveraging cost savings and productivity improvements to counterbalance the impact of tariffs.
Despite the multiple announcements that require consideration, Goldman Sachs remains optimistic about Constellation Brands' prospects. The firm sees the divestiture of a significant portion of the Wine business as a positive move, given that it has been weighing down the company's financial performance. Additionally, the reset of expectations for the medium-term outlook of the Beer segment is seen as a realistic and potentially conservative approach that could benefit the company. The report also notes that Constellation Brands' beer brand continues to perform well, especially among Hispanic consumers, and forecasts a robust free cash flow (FCF) of $6 billion over the next three fiscal years. Supporting this outlook, InvestingPro data shows the company maintains healthy margins with a gross profit margin of 51.5% and generated $1.7 billion in levered free cash flow over the last twelve months. The Buy rating is upheld by Goldman Sachs due to the favorable risk-reward balance for Constellation Brands. For deeper insights into STZ's valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, Constellation Brands Inc. has announced the sale of part of its wine portfolio to The Wine Group. This decision aligns with the company's strategy to concentrate on higher-end wine and spirits offerings. The transaction is expected to close after Constellation's first fiscal quarter of 2026, pending regulatory approval. In another development, RBC Capital Markets maintained an Outperform rating on Constellation Brands, setting a price target of $289, while UBS adjusted its target to $205 but retained a Buy rating. Bernstein analysts increased their price target to $260, citing recent tariff clarifications on aluminum, which affects the company's cost structure.
Additionally, Constellation Brands is scaling back its Diversity, Equity, and Inclusion (DEI) efforts, including ending participation in certain advocacy activities. The company is also reviewing its organizational structure to achieve over $200 million in net annualized cost savings by fiscal year 2028. These changes are part of a broader strategy to enhance growth and competitive positioning. Investors are awaiting further details in the upcoming fiscal year and fourth-quarter earnings release.
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