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Investing.com -- JPMorgan analysts remain cautious on the outlook for U.S. alcoholic beverage stocks, citing ongoing uncertainty over whether the current consumption slowdown is cyclical or structural.
In a note to clients, the bank said it has assumed lead coverage of Constellation Brands, Molson Coors, and Brown-Forman, maintaining Neutral ratings on the first two and an Underweight on the latter.
“We remain cautious overall on the consumption environment for alcohol in the U.S. with limited visibility to return to historical trend across beer, wine, and spirits,” JPMorgan analyst Drew Levine wrote.
“The key debate in the sector is whether consumption softness is structural or cyclical,” he added.
While company managements see the slowdown as cyclical, JPMorgan noted that “most investors [are] leaning more into the ‘structural’ side of the argument,” pointing to factors such as health and wellness trends, younger consumers drinking less, and emerging risks from GLP-1 drugs and hemp-derived beverages.
“Coming up on two-plus years of well below trend growth, it’s hard to ignore some structural underpinnings to the slowdown,” the firm stated.
Levine added that while companies are pushing into adjacencies like non-alcoholic beer and ready-to-drink cocktails, “innovation is typically not a core competency of large incumbents.”
Valuations have fallen sharply, with beer and spirits stocks trading at steep discounts to their historical averages.
JPMorgan believes that despite this, “lower confidence in forward top-line, earnings, and cash flow growth” makes a re-rating difficult.
“To get more constructive on the space,” the bank said, “companies need to provide more realistic medium-term outlooks and end the cycle of negative earnings revisions.”