Two Wall Street research firms labeled Constellation Brands a buy, arguing that concerns about the beer maker's key sales metric are overblown. Industry-wide attrition — a measure of how much beer distributors sell to retailers — “remains weak” and sees a potential slowdown in April due to bad weather, Jefferies analysts said last week. However, dealers surveyed by Jefferies are bullish on Constellation, seeing buyers replacing its Modelo brand. Based on the semi-annual beer market survey, analysts expect Constellation's attrition to rise by 7% or more this year. To that end, Jefferies remains positive on the company's ability to achieve its 2025 financial guidance of institutional net sales growth of 6% to 7%, with beer up 7% to 9% and wine and spirits up 0.5% to 0.5%. She has a buy on STZ stock. STZ YTD Mountain Constellation Brands YTD Concerns about an industry slowdown are likely the reason Constellation shares are down 4% since announcing upbeat fiscal 2024 fourth-quarter earnings and forward guidance on April 11 compared to a roughly 3% rise in the S&P 500 Shares fell about 1% to about $253 on Monday — still about 8% shy of their record closing high of about $273. Wells Fargo said Monday it's time to buy the “depletion failure” selloff. “It is as if every few months there is a need to defend STZ stock in a fundamental debate (usually missing attritions) that would not normally occur, the stock rebounds, and then we go through the same cycle again. We appreciate how frustrating this can be for holders Stock, and precisely because of the focus on weekly depletion for a company that has never missed its annual depletion algorithm over the past decade, we find ourselves once again defending the stock today, and saying to buy the stock… “now… because we believe the 'depletion fails' debate… Misleading, we view the valuation as too low, and we view STZ overall on the cusp of a multi-year earnings acceleration cycle,” Wells Fargo analysts wrote. We agree with that sentiment, which is why we're holding on to the stock. Both Club and Wells Fargo have a $300 price target. They said Wells Fargo analysts say their work suggests that first-quarter fiscal 2025 estimates of a 6.5% rise in depletion are reasonable, with the Wall Street consensus estimate coming in at 7.3%. There has been little upside from Wells Fargo in its argument that its struggling wine and spirits business is at a loss At Constellation it's not a factor at the moment. “STZ's W&S business has been mostly cannibalized over the past decade,” analysts said — down from 45% of profits a decade ago and 27% of profits in fiscal 2019. They estimate wine and spirits will be less than 10% of profits Fiscal year 2025. Jim has been calling for Constellation to stop wine and spirits and focus solely on beer. So far, the company has not indicated any movement in this direction. Elliott Management owns a significant stake in Constellation and the company works with the activist investor group, which has a strong track record of generating value for shareholders. After strong earnings and rosy guidance last month, Constellation CEO Bill Newlands told Jim that the company plans to improve its wine and spirits division by focusing on “important brands” and execution. “We spread ourselves a little thin last year,” Newlands admitted at the time. The next event, before first-quarter fiscal 2025 earnings due this summer, is a presentation from Newlands and CFO Garth Hankinson at Bernstein's Strategic Decisions conference on May 29. (Jim Cramer Charitable Fund is long STZ. See here for the full list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim takes a trade. Jim waits 45 minutes after a trade alert is sent before buying or selling a stock in his charitable fund's portfolio. If Jim talks about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. The above Investment Club information is subject to our Terms and Conditions and Privacy Policy, as well as our Disclaimer. No obligation or fiduciary duty exists or is created by your receipt of any information provided in connection with the Investment Club. No specific results or profits are guaranteed.
Cans of Corona and Modelo beer are displayed on a shelf at a BevMo store on January 05, 2024 in San Rafael, California.
Justin Sullivan | Getty Images
There are two Wall Street research firms that contact us Constellation brands Buy, arguing that concerns about the brewer's key sales metric are overblown.
