Constellation Brands Falls Into A Buying Opportunity
Constellation Brands, Inc (NYSE: STZ) share price fell in the wake of the Q3 earnings results but we view this as a buying opportunity in this stock. The results were better than expected and included upwardly revised guidance that has the analysts upping their price targets. That, on top of the robust institutional activity over the past year, suggests to us this stock is not only going higher but much higher and for a sustained period of time. The institutional activity was heavy and speaks of rotation but, on balance, was very bullish.
Institutions bought a $6.64 billion worth of shares in 2021 for a net increase worth $3.04 billion. That’s equal to 6.6% of the market cap and brings the total ownership up to 71.66%. Buying activity was strong all year but, notably, accelerated on a quarter to quarter basis and peaked in the Q4 period. Institutional activity in Q1 is light so far but all buying. As for the insiders, the insiders haven’t been buying or selling in recent quarters which says a lot by itself. The insider holdings are equal to 15.64% of the shares and they are content to hold onto what they have.
The Analysts Are Driving Constellation Brands Higher
Another reason we view this pullback in Constellation Brands as a buying opportunity is because of the analysts. The analysts have been upping their ratings and price targets all year and there is no indication of that ending this quarter or next. The consensus price target is up 22% in the last 12 months, 5% in the last 90 days, and 3.8% in the last 30 driven by a fresh round of price target increases. At least 8 sell-side analysts have come out with commentary since the Q3 report was released and all include a price target increase. The consensus rating is a Weak Buy with a target of $269. That target implies about 9.5% of upside for the stock while the recently set high price target of $316 suggests the stock has about 28.5% of upside ahead of it.
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Constellation Brands had a good Q3 despite systemic issues, rising inflation, and the divestiture of underperforming wine businesses over the past year. The company reported $2.32 billion in net revenue for a decline of 4.9% versus last year but 175 basis points better than expected. The strength was driven by gains in the beer portfolio which grew by 3.1% and strength in the ongoing wine and spirits businesses. Moving on to the margins, margins held well with margins in the wine business improving and offsetting weakness in other areas. On the bottom line, the GAAP $2.48missed the consensus by $0.13 but there are one-off and non-recurring factors influencing the number. The adjusted $3.42, however, grew versus last year and beat the consensus by $0.63.
A Dividend Increase Is In The Cards For Constellation Brands Shareholders
Constellation Brands is a solid dividend payer yielding about 1.22%. The payout isn’t huge but it is reliable and there is a positive outlook for distribution growth. The company is only paying out 30% of its consensus earnings estimate, has a solid balance sheet, and has a 6-year history of increases so there is no reason not to expect an increase. The caveat is that the next increases may not be large due to the recent history. A penny per share quarterly increase or about 1.3% is what we are expecting.
The Technical Outlook: Constellation Brands Pulls Back To Support
Shares of Constellation Brands moved higher in the wake of the report but profit-taking at the new all-time high reversed the action and caused price action to move lower. The candle is large and red and looks ominous but did not break support at the exponential moving average. Price action appears to be holding above the EMA now leaving the uptrend intact so we are expecting a retest of the all-time high. If price action can get above the all-time high we see it moving up to the $275 to $280 range.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Constellation Brands (STZ) | $262.46 | +1.5% | 1.36% | 27.98 | Moderate Buy | $298.55 |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
