Citi maintains buy on Constellation Brands with steady target

Citi reaffirmed its Buy rating on shares of Constellation Brands (NYSE:STZ) with a steady price target of $305.00. The company has revised its fiscal year 2025 (FY25) guidance, particularly for its beer business, where it now anticipates a slight decrease in net sales growth, projecting a range of 6-8% compared to the previous 7-9%. However, the outlook for beer operating income growth is more robust, at 11-12%, up from the earlier forecast of 10-12%.

The updated guidance for FY25 also includes an adjusted projection for the wine and spirits segment. Net sales in this division are expected to decline by 6-4%, a steeper drop than the earlier estimate of a 0.5% decrease to a 0.5% increase.

Operating income for wine and spirits is also projected to fall by 18-16%, which is more than the previously anticipated decline of 9-11%.

The revised guidance includes an adjusted earnings per share (EPS) range of $13.60 to $13.80, which is slightly higher than the previous range of $13.50 to $13.80. This updated EPS forecast is also in line with Citi's and consensus estimates, which stand at $13.55 and $13.69, respectively.

Citi views the guidance update as generally favorable for Constellation Brands' stock. The anticipated decrease in beer net sales and the weakness in the wine and spirits segment were expected by the market, and the impact on the company's profit and EPS was less severe than anticipated. Citi continues to find the valuation of Constellation Brands appealing, citing an attractive price-to-earnings ratio of approximately 17.5 times the FY25 EPS.

Constellation Brands reported the resignation of board member Judy A. Schmeling, although no disputes or disagreements were indicated as a cause.

In financial developments, Constellation Brands posted strong first-quarter earnings for the fiscal year 2025, with earnings per share (EPS) of $3.57, largely due to robust beer margins and decreased interest expenses. The company's beer portfolio also marked a 57th consecutive quarter of depletion growth.

Morgan Stanley revised its price target for Constellation Brands from $305.00 to $280.00, citing near-term challenges, but maintained an Overweight rating, indicating belief in long-term growth. Jefferies and Piper Sandler also maintained positive ratings, with Jefferies highlighting impressive sales and EBITDA growth, and Piper Sandler emphasizing potential for long-term growth.

In governance matters, Constellation Brands' Annual Meeting of Stockholders resulted in the election of thirteen directors and the ratification of KPMG LLP as the independent auditor for the upcoming fiscal year. However, three stockholder proposals related to environmental concerns were not approved.

InvestingPro Insights

As Constellation Brands (NYSE:STZ) navigates its fiscal year 2025 with revised guidance, investors may benefit from additional insights. According to InvestingPro, Constellation Brands has a track record of raising its dividend for nine consecutive years, underscoring a commitment to returning value to shareholders. This is particularly noteworthy given the company's current dividend yield of 1.68%. Furthermore, the company's liquid assets surpass its short-term obligations, indicating a stable financial position that may reassure investors concerned about short-term liquidity.

InvestingPro Data highlights a market capitalization of $45.02 billion and a robust gross profit margin of over 51% for the last twelve months as of Q1 2023. The company's revenue growth over the same period was 5.25%, with an even higher quarterly growth rate of 5.84% in Q1 2023. Despite trading near its 52-week low, Constellation Brands is perceived to be trading at a high revenue valuation multiple, with a P/E ratio of 18.11. Investors considering Constellation Brands will find additional InvestingPro Tips on the platform, which include an analysis predicting the company will remain profitable this year and a total of 6 tips currently available.

For those seeking more in-depth analysis, the InvestingPro platform offers further tips and data points, providing a comprehensive view of Constellation Brands' financial health and market performance. Visit https://www.investing.com/pro/STZ for a deeper dive into the company's prospects.

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