Constellation Brands’ Beer Turnaround Remains Unproven, BofA Says Cutting STZ Stock Price Target

CEO Nicholas Fink said September trends showed broad-based improvement beyond Labor Day timing, with strength in the club channel and acceleration as college football and other programming got underway.

• According to The Fly, BofA lowered its price target on Constellation Brands to $120 from $145 while maintaining an 'Underperform' rating, citing limited evidence of a sustainable turnaround in the beer business.
• The Veracruz brewery is about 85% complete and is expected to come online at the beginning of FY28, with annualized depreciation of about $75 million.
• Constellation said Corona's share has stabilized, while Pacifico is compounding at close to 20% year to date and has become a top-10 beer brand.

Constellation Brands (STZ) shares were in focus Wednesday after Bank of America (BofA) analyst Peter Galbo lowered his price target on the stock to $120 from $145 while maintaining an 'Underperform' rating following the company's second-quarter results.

According to The Fly, BofA said a lower valuation multiple is justified given the lack of an evident, sustainable turnaround in the beer business.

STZ stock rose as much as 2.09% in morning trade, paring gains after crossing $120 for the first time since mid-September.

Management Points To Improving September Trends

On its second-quarter(Q2) earnings call, Constellation reiterated its fiscal 2027 comparable earnings per share (EPS) guidance in the range of $11.20 to $11.90 and said it would expect it to land at the high end of that range if positive September trends continue.

CEO Nicholas Fink said the September improvement was not solely related to Labor Day timing, with the company seeing non-timing-related acceleration during the month as college football and other programming got underway. He also described the improvement as broad-based and highlighted strength in the club channel.

Distributor Inventories Improve

Fink said distributor inventories were in a “great position” but remained below historical averages. He said first-half shipments helped rebuild inventory, close order backlogs and avoid out-of-stocks. Management expects second-half shipments to look more normal, with full-year shipments and depletions expected to track within 99% of each other.

Beer Business Reports Higher Sales, Lower Depletions

Constellation's beer business reported a 5% increase in net sales in Q2, with shipment volumes rising 5.5%, while depletions declined 0.6%. The company said it led the category in dollar and volume share gains across U.S. tracked channels.

On the call, Fink said Corona's share had stabilized, with its four-week performance better than its 12-week performance and its 12-week performance better than its 52-week performance. He also said Pacifico was compounding at close to 20% year to date and had become a top-10 beer brand.

Marketing Investment To Increase

Constellation expects marketing to account for about 10% of net sales in the second half of fiscal 2027, with third-quarter spending above 11% of net sales as the company continues investments in Major League Baseball and NCAA football.

CFO Garth Hankinson said the company had probably underspent on marketing in the last couple of years and is getting back to what it considers healthy levels to drive the top line.

Veracruz Brewery Nears Completion

Constellation said its Veracruz brewery was about 85% complete and is expected to come online at the beginning of fiscal 2028.

The company expects annualized depreciation of about $75 million from the facility, representing an approximately 90-basis-point margin headwind.

Q2 Earnings Highlights

Constellation Brands beat quarterly earnings estimates but kept its full-year comparable profit outlook unchanged. Comparable EPS came in at $3.74 for the fiscal second quarter ended Aug. 31, up 3% from $3.63 a year earlier and above estimates of about $3.60.

The company reported Q2 net sales of $2.63 billion, with beer net sales increasing 5% and shipment volumes rising 5.5%, while beer depletions declined 0.6%.

Constellation returned more than $800 million through buybacks and dividends in the first half, and has repurchased $530 million of shares year to date through September, and declared a $1.03 quarterly dividend payable Nov. 13.

Retail View On STZ Stock

On Stocktwits, retail sentiment around STZ stock remained in ‘Bullish’ territory over the past 24 hours, while message volume rose from ‘High’ to ‘Extremely High’ levels.

STZ shares are down more than 15% year to date.

For updates and corrections, email newsroom[at]stocktwits[dot]com.<