Constellation Brands stock has upside to $300: RBC’s Modi

Constellation Brands Inc (NYSE: STZ) reported Wednesday fiscal first quarter results that reinforces the bullish case for owning the stock, according to RBC Capital Markets analyst Nik Modi.

Path to $300 per share

Following Constellation Brands’ earnings report, Modi maintained an Outperform rating on the stock with an unchanged $300 price target. The analyst was not concerned with beer shipment growth of 11.3% which was short of his estimates of 18% growth and the consensus estimate of 16% growth. In fact, the miss was somewhat expected as Constellation CFO Garth Hankinson said at the RBC consumer conference that supply chain issues would impact shipment volume.

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Management maintained its full-year fiscal 2022 beer net sales target of 7.9% growth which implies “distributor replenishment” in the back half of the year and any shipment weakness is “a transitory event,” the analyst wrote.

Meanwhile, beer margins expanded more than 100 basis points to 42.8%, marking the highest levels seen in recent history. In addition, the board of directors approved an accelerated stock buyback program in which it will retire $1 billion worth of shares in fiscal 2022 and a total of $2.5 billion through fiscal 2023.

Another catalyst to drive upside in Constellation Brands stock include an improving performance within Wines & Spirits. Specifically, net sales were down just 21.5% in the quarter versus the consensus estimate of down 29%. The company showed 16% organic sales growth and several key brands, including Kim Crawford, Meiomi, and The Prisoner gained market share.

‘More upside exists’

Shares of Constellation Brands are up around 8% in 2021 and more than 45% over the past year. Yet the stock is roughly flat versus 2018 levels. As such, the research firm believes that “more upside exists” given the company’s ability to drive high-single-digit beer top-line growth for the next few years. Modi states:

STZ shares are in line with levels seen about three years ago despite the company strengthening its beer business, reshaping its wine portfolio to be more profitable and faster growing, and indicating that it will be more prudent on capital allocation under the leadership of Bill Newlands.