Constellation Brands Stock Rises As Modelo Stars As Top Beer

On April 11, Constellation Brands (STZ) reported fiscal 2024 fourth-quarter results that impressed investors. The global producer of beer, wine, and spirits reported profits that not only surpassed Wall Street’s expectations, but also provided a glowing outlook for the current year. This news drove shares to an all-time high of $274.87, marking the highest daily trading volume since January 2023.  

Constellation’s revenue rose 7% year-over-year at $2.14 billion for the three months ending February 29, 2024. This growth was primarily driven by robust beer sales. Earnings per share (EPS) also rose by 14% to $2.26, handily beating the consensus estimate of $2.11.   

For the full year, Constellation’s beer sales rose more than 9%, marking the 14th consecutive year of sales volumes growth. The company also recorded significant market share gains, driven by strong demand for its premium brands. Its portfolio, including Modelo, Corona, Pacifico, Victoria, and Fresca, remains one of the most robust offerings in the beer industry.   

Despite the strong performance of the beer segment, which accounted for 82% of fiscal 2024’s revenue, Constellation’s wine and spirits business did not perform as well. This segment experienced a 9% decline in sales during FY24, attributed to weak wholesale demand and inventory destocking. However, the company is optimistic about a rebound in performance for this unit in FY25. 

Modelo Is America’s #1 Beer Brand 

The U.S. alcoholic beverage industry is undergoing a notable trend: the growing popularity of Mexican beers. This shift can be attributed to several factors including demographic changes, with growth in the nation’s Hispanic population, and a cultural shift where younger generations are increasingly inclined to explore ethnic foods and beverages.  

Effective marketing strategies that emphasize authenticity and visually appealing packaging have helped as well in bringing Mexican beers into the mainstream American market.   

Constellation Brands has been at the forefront of this trend with its Modelo Especial beer. In May 2023, Modelo Especial overtook Bud Light as America’s best-selling beer, a title Bud Light had held for two decades. Modelo Especial has maintained its market leadership, selling over 20 million cases in fiscal year 2024 alone.   

However, Modelo Especial is not the only Mexican beer making waves in the U.S. market. Other brands from Constellation, such as Corona Extra, Pacifico, Modelo Oro, and Modelo Chelada, also held a spot among the top 10 market share gainers in the U.S. beer category for FY24.   

This broad success underscores Constellation’s effective capitalization on the growing demand for Mexican beers, positioning the company to benefit from multiple products within the very hot beer segment. 

Management Sees Profits Growing 13% This Year 

Constellation Brands’ management has presented an optimistic outlook for FY25 , driven by continued momentum in beer sales and expectations for a recovery in the wine and spirits segments.   

The company projects full-year earnings per share (EPS) to be between $13.50 and $13.80, which, at the midpoint, implies a 13% growth rate. This projected growth rate is consistent with the performance Constellation Brands recorded in FY24.   

This forecast implies Constellation Brands’ stock will trade with a forward 12-month price-to-earnings (P/E) ratio of approximately 20 times. When compared to its industry peers, this ratio places Constellation slightly above Anheuser-Busch, which has a forward P/E of 17 times, and Diageo at 19 times. However, other competitors such as Brown-Forman and The Boston Beer Company command higher forward P/E multiples of 26 times and 29 times, respectively.   

Given Constellation Brands’ robust performance, particularly in its Mexican beer portfolio, some analysts argue that the company merits a higher valuation. 

Wall Street Raises A Glass To STZ 

On Friday, BMO Capital raised its price target on Constellation Brands to $315 and kept an Outperform rating. In addition to the convincing Q4 beat, the analyst cited strong beer momentum, the potential for above-industry growth, and reasonable P/E ratio. HSBC also took a bullish stance on STZ noting the company’s positive FY25 outlook and exposure to the fast-growing Mexican imports segment.   

Since Constellation Brands’ fourth quarter earnings release, nine of ten Wall Street firms have called the stock a Buy. The lone holdout, Deutsche Bank, maintained a Hold rating.   

The latest consensus price target on STZ ($298) implies 12% upside from here — but several analysts expect the share price to cross into the $300’s over the next 12 months. If it does, Modelo Especial, the newly crowned King of Beers, will likely be a big factor.