Morgan Stanley Lifts Constellation Brands’ Target Price to $266, Reiterates Overweight Rating

Morgan Stanley raised their base stock price forecast on Constellation Brands to $266 from $260, reiterating an “Overweight” rating on the corona beer marker and said with beer depletion growth rebounding sustainably to the HSD range, and high visibility that STZ’s FY guidance is conservative.

On Wednesday, the New York-based Fortune 500 international beverage alcohol company said it lost $908.1 million, or $4.74 a share in its fiscal first quarter, compared with a 94-cent loss in the year-ago period. On an adjusted basis, the company reported earnings per share of $2.33 and revenue of $2.03 billion. Analysts predicted EPS of $2.35 on revenue of $2.02 billion. The beer maker said it sees FY22 comparable EPS of $10.00-$10.30.

“We are reiterating our OW rating on STZ. Post Q1 upside, we have even greater visibility that underlying beer depletion growth is rebounding sustainably to the HSD range (near 10% growth days adjusted in fiscal Q1), and better visibility that Constellation Brands’ (STZ) FY guidance is conservative, given a Q1 beat, better than expected beer margin performance in Q1 (contrary to concern regarding what we viewed as conservative initial FY21 beer margin guidance last quarter), and a pending beer inventory rebuild in the balance of the year,” noted Dara Mohsenian, equity analyst at Morgan Stanley.

“Attractive valuation of 19x times CY22 EPS and 15x times EV/EBITDA does not reflect STZ’s strong 7-8% LT corporate topline growth outlook in our minds, with the beer business returning to consistent HSD% depletion growth in FY22 and beyond, increased beer mix post the low-end wine divestiture, an improved wine & spirits growth outlook post the divestiture, and a return to share repurchases.”

Constellation Brands shares rose about 7% so far this year. The stock traded 0.12% higher at $234.175 on Thursday.

Fifteen analysts who offered stock ratings for Constellation Brands in the last three months forecast the average price in 12 months at $271.00 with a high forecast of $305.00 and a low forecast of $226.00. The average price target represents 15.91% from the last price of $233.81. Of those 15 equity analysts, 13 rated “Buy”, two rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $310 under the bull scenario and $147 under the worst-case scenario.

“Near-Term Beer Depletions Re-Acceleration: We expect a re-acceleration to +HSD% beer depletions growth in FY22 and beyond post negative COVID impacts in FY21. Our expected improvement is driven by the resolution of beer out-of-stocks, improving shelf-space and market share trends for STZ high-velocity products, as well as innovation contribution,” Morgan Stanley’s Mohsenian added.

“Solid Long-Term Beer Fundamentals: Our robust +HSD% LT beer topline CAGR is driven by favorable sub-category positioning (high-end beer), advantageous demographics (skew to Hispanics), solid pricing, and innovation. Our ~7.7% 3-year STZ corporate organic sales forecast is above the ~4% growth at similarly valued beverage peers.”

Other equity analysts also recently updated their stock outlook. UBS raised the target price to $264 from $256. Citigroup lifted the price target to $257 from $244. Deutsche Bank increased the target price to $242 from $223. Guggenheim upped the price target to $226 from $220. Credit Suisse lifted the target price to $275 from $260.

Check out FX Empire’s earnings calendar

Why Corona Beer Stock Is Gaining Ground Today

Constellation Brands Stock Gains Ground As Demand For Beer Stays Strong

Shares of Constellation Brands, the maker of Corona Beer, gained ground after the release of the fiscal first quarter report. Constellation Brands reported revenue of $2.03 billion and an adjusted loss of $2.33 per share, beating analyst estimates on revenue and missing them on earnings.

The company declared a quarterly dividend of $0.76 per share, in line with the previous dividend. At current price levels, the stock yields 1.29%. Constellation Brands raised the dividend in the previous quarter, and the market did not expect another increase in the dividend.

The report indicated that demand for beer remained strong, and beer depletion growth accelerated. Strong demand allowed the company to generate free cash flow of $602 million.

For the fiscal 2022, the company expects to report adjusted EPS of $10.00 – $10.30, up from the company’s previous estimate of $9.97. Constellation Brands targets fiscal 2022 operating cash flow of $2.4 billion – $2.6 billion and free cash flow of $1.4 billion – $1.5 billion.

It should be noted that Constellation Brands plans approximately $500 million of incremental share repurchases in the second quarter and remains committed to $2.5 billion of share repurchases through fiscal 2023.

What’s Next For Constellation Brands Stock?

Assuming that the company will be able to reach the midpoint of its adjusted EPS guidance for fiscal 2022, the stock is trading at 23 forward P/E for fiscal 2022 which is not very cheap, even for the current market environment.

However, improved guidance will likely continue to provide support to the company’s shares in the near term. Incremental share repurchases will serve as an additional important catalyst.

Constellation Brands stock has been range-bound for several months, and the recent report may push the stock to the test of the all-time high levels. While the stock is not cheap, its valuation is reasonable, and it remains attractive at current levels.

For a look at all of today’s economic events, check out our economic calendar.

Earnings to Watch Next Week: Constellation Brands, General Mills and Acuity Brands in Focus

Earnings Calendar For The Week Of June 28

Monday (June 28)

Ticker Company EPS Forecast
MLHR Herman Miller $0.39

Tuesday (June 29)

Ticker Company EPS Forecast
AVAV AeroVironment $0.81

Wednesday (June 30)

IN THE SPOTLIGHT: CONSTELLATION BRANDS, GENERAL MILLS

CONSTELLATION BRANDS: The New York-based Fortune 500 international beverage alcohol company Constellation Brands is expected to report its fiscal first-quarter earnings of $2.36 per share on Wednesday, which represents year-over-year growth of about 3% from $2.30 per share seen in the same quarter a year ago.

The corona beer marker’s revenue is predicted to rise over 4% to around $2.05 billion during the quarter ended May 2021. That comes after the company reported better-than-expected earnings in the previous quarter with profit and revenue exceeding analysts’ expectations.

Constellation Brands’ better-than-expected results, which will be announced on June 30, would help the stock hit new highs in the near term. Constellation Brands shares rose over 3% so far this year.

“We are lowering our 1Q outlook for beer, given tough off-premise revenue comps, in addition to input cost inflation and higher investment spend in the earlier part of the year. As such, we are now looking for STZ to deliver EPS of $2.40 (ex-WEED), which is two cents ahead of consensus estimates,” noted Vivien Azer, equity analyst at Cowen.

“On a total company basis, we are modeling for 4.3% reported revenue growth (vs. +4.0% Street), driven by 19% growth in beer, though offset by a ~31% decline in wine & spirits. On an organic basis, we are modeling for total company revenue growth of 14.3%, with the higher growth driven by LSD organic growth in wine & spirits.”

GENERAL MILLS: The Golden Valley, Minnesota-based company is expected to report its fiscal fourth-quarter earnings of $0.85 per share, which represents a year-over-year decline of over 20%, down from $1.10 per share seen in the same period a year ago.

The consumer foods manufacturer’s revenue would decline over 14% year-over-year to $4.3 billion. In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 6%.

“We forecast slight LT organic sales growth after outsized +4% FY20 organic growth on COVID-19 related demand, with muted category and geographic growth. GIS also has a limited margin expansion opportunity (we model +10 bps/yr) with an already efficient cost structure, and we worry about GM pressure given higher commodities,” noted Dara Mohsenian, equity analyst at Morgan Stanley.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JUNE 30

Ticker Company EPS Forecast
STZ Constellation Brands $2.36
UNF UniFirst $1.84
SJR Shaw Communications USA $0.27
BBBY Bed Bath & Beyond Inc. $0.08
MU Micron Technology $1.70
GIS General Mills $0.85

Thursday (July 1)

IN THE SPOTLIGHT: ACUITY BRANDS

The lighting and building management firm is expected to report its fiscal third-quarter earnings of $2.24 per share, which represents year-over-year growth of over 15%, up from $1.94 per share seen in same period a year ago.

The Atlanta, Georgia-based company would post year-over-year revenue growth of nearly 8% to $ 836.4 million.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JULY 1

Ticker Company EPS Forecast
AYI Acuity Brands $2.24
WBA Walgreens Boots Alliance $1.15
MKC McCormick $0.62
MFGP Micro Focus ADR $0.83
MCRO Micro Focus Intl £0.77

Friday (July 2)

There are no major earnings scheduled.

Beer Giant Constellation Brands’ Q4 Earnings to Top Estimates; Target Price $268

The New York-based Fortune 500 international beverage alcohol company Constellation Brands is expected to report its fiscal first-quarter earnings of $2.36 per share on Wednesday, which represents year-over-year growth of about 3% from $2.30 per share seen in the same quarter a year ago.

The corona beer marker’s revenue is predicted to rise over 4% to around $2.05 billion during the quarter ended May 2021. That comes after the company reported better-than-expected earnings in the previous quarter with profit and revenue exceeding analysts’ expectations.

Constellation Brands’ better-than-expected results, which will be announced on June 30, would help the stock hit new highs in the near term. Constellation Brands shares rose over 3% so far this year.

Analyst Comments

“We expect investor focus with FQ1 EPS will likely be on Q1 beer depletion growth and June trends, as well as the FY22 EPS outlook, which we expect Constellation Brands (STZ) to reiterate,” noted Dara Mohsenian, equity analyst at Morgan Stanley.

“Our FQ1 EPS estimate is $2.40 (including Canopy equity income losses), slightly above Eikon consensus of $2.38, or $2.58 excluding Canopy vs. Visible Alpha consensus of $2.49. We expect the market to be most focused on beer depletion trends and margins in FQ1, but also more focused on the forward outlook including June depletion trends, and EPS guidance for FY22.”

Constellation Brands Stock Price Forecast

Thirteen analysts who offered stock ratings for Constellation Brands in the last three months forecast the average price in 12 months of $268.00 with a high forecast of $305.00 and a low forecast of $219.00.

The average price target represents 18.58% from the last price of $226.00. Of those 13 analysts, 11 rated “Buy”, two rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $260 with a high of $310 under a bull scenario and $147 under the worst-case scenario. The firm gave an “Overweight” rating on the alcohol company’s stock.

Several other analysts have also updated their stock outlook. Deutsche Bank raised the target price to $223 from $222. MKM Partners dropped their price objective to $216 from $219 and set a “neutral” rating. Sanford C. Bernstein issued an “outperform” rating and a $305 price objective for the company. Wolfe Research issued an “outperform” rating and a $265 price objective for the company.

“We are lowering our 1Q outlook for beer, given tough off-premise revenue comps, in addition to input cost inflation and higher investment spend in the earlier part of the year. As such, we are now looking for STZ to deliver EPS of $2.40 (ex-WEED), which is two cents ahead of consensus estimates,” noted Vivien Azer, equity analyst at Cowen.

“On a total company basis, we are modeling for 4.3% reported revenue growth (vs. +4.0% Street), driven by 19% growth in beer, though offset by a ~31% decline in wine & spirits. On an organic basis, we are modeling for total company revenue growth of 14.3%, with the higher growth driven by LSD organic growth in wine & spirits.”

Check out FX Empire’s earnings calendar

Corona Beer Stock Stays Attractive At Current Levels

Constellation Brands Video 20.05.21.

Constellation Brands Stock Pulls Back But Stays Close To All-Time Highs

Shares of Corona beer maker Constellation Brands made an attempt to settle above the $245 level at the beginning of this month but lost momentum and pulled back together with S&P 500.

The company reported its quarterly results back in April, and the stock found itself under pressure right after the release of the report. The company’s earnings guidance was below expectations, but traders managed to shrug off worries about the conservative guidance.

Analysts estimates have been mostly stable in recent weeks, and the company is expected to report earnings of $10.1 per share in the current fiscal year and $11.75 per share in the next fiscal year.

Currently, the stock is trading at 20 forward P/E which is a decent valuation level for the current market environment, but the stock’s ability to gain additional upside momentum will depend on whether earnings estimates will begin to move higher.

What’s Next For Constellation Brands?

The key question for investors is whether the continued rebound of the economy will increase demand for the company’s beer, wine and spirits, pushing analyst earnings estimates higher.

While 20 forward P/E looks like a reasonable valuation, it is not extremely cheap, and the company will have to show robust growth to justify multiple expansion that will push its shares to higher levels.

At the same time, it should be noted that rotation from high-flying tech stocks into other market segments may provide some help to Constellation Brands shares as the beverages industry serves as the defensive segment at times of market volatility.

I’d also add that the company’s peers in the beverages segment often enjoy higher multiples so the market looks ready to pay a premium when it sees growth. In this light, Constellation Brands shares should have a chance to gain additional upside momentum if the company outperforms its previous earnings guidance of $9.97 per share (on a comparable basis).

For a look at all of today’s economic events, check out our economic calendar.

Why Shares Of Constellation Brands Are Down By 5% Today?

Constellation Brands Video 08.04.21.

Constellation Brands Shares Move Lower As Earnings Outlook Disappoints

Shares of Constellation Brands found themselves under pressure after the company released its quarterly results and provided outlook for fiscal year 2022.

The owner of Corona beer brand reported revenue of $1.95 billion and GAAP earnings of $1.95 per share, beating analyst estimates on both earnings and revenue. The company declared quarterly dividend of $0.76 per share, an increase from the previous dividend of $0.75 per share. At current stock price levels, Constellation Brands yields 1.37%, so its dividend is not sufficient enough to attract yield-oriented investors.

In the fiscal year 2022, the company expects to report earnings of $6.90 – $7.20 per share compared to $10.23 per share in 2021 due to the negative impact of Canopy equity losses. On a comparable basis, earnings are projected to decline from $10.44 in 2021 to $9.97 in 2022. Analysts expected that Constellation Brands would report earnings of $10.44 in 2022, so the company’s earnings guidance was below expectations, which served as a material bearish catalyst for the stock in today’s trading session.

What’s Next For Constellation Brands?

The company’s decision to increase the dividend failed to provide any support to the stock as the market focused on weaker outlook for fiscal 2022.

Constellation Brands did well during the challenging 2020, and its shares have fully recovered after the major sell-off in March 2020. However, it looks that the stock will need additional catalysts to gain more upside momentum and get back to recent highs.

Assuming that Constellation Brands meets its adjusted earnings guidance for 2022, the stock is trading at 22 forward P/E. This is a reasonable valuation in today’s market, but it’s certainly not cheap enough to count as a value play.

Meanwhile, the lack of earnings growth may put some pressure on the company’s shares. At the same time, it remains to be seen whether the company’s guidance is too conservative and actual results will be better.

For a look at all of today’s economic events, check out our economic calendar.

Beer Giant Constellation Brands’ Q4 Earnings and Revenue to Decline; Investors Eye Guidance

New York-based Fortune 500 international beverage alcohol company Constellation Brands is expected to report its fiscal fourth-quarter earnings of $1.44 per share on Thursday, which represents a year-over-year decline of over 30% from $2.02 per share seen in the same quarter a year ago.

The corona beer marker’s revenue is predicted to decline nearly 3% to around $1.84 billion during the quarter ended February 2021. That comes after the company reported better-than-expected earnings in the previous quarter with profit and revenue far exceeding analysts’ expectations.

However, it is worth noting that in the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 21%.

Constellation Brands shares, which surged over 15% in 2020 and added another 7% so far this year, traded nearly flat at $235.02 on Wednesday.

Analyst Comments

“We expect investor focus with FQ4 EPS will likely be on Q4 beer depletion growth and March trends, as well as the initial FY22 EPS outlook, which we expect Constellation Brands (STZ) to guide conservatively,” noted Dara Mohsenian, equity analyst at Morgan Stanley.

“Our FQ4 EPS estimate is $1.59 (including Canopy equity income losses) is above Eikon consensus of $1.53, or $1.71 excluding Canopy vs. Visible Alpha consensus of $1.72. We expect the market to be most focused on beer depletion trends and margins in Q4, but also more focused on the forward outlook including March depletion trends, and EPS guidance for FY22. We forecast +7.9% y-o-y corporate Constellation Brands (STZ) organic sales growth in FQ4 on a +6.9% prior-year comparison driven by +12.8% organic topline growth in beer, aided by an assumed shipment catch-up in FQ4 (MSe of ~350 bps), recovering the under-shipment in F1H21 due to production limitations at STZ’s Mexican production plants given government-mandated COVID-19 restrictions.”

Constellation Brands Stock Price Forecast

Fifteen analysts who offered stock ratings for Constellation Brands in the last three months forecast the average price in 12 months of $255.33 with a high forecast of $300.00 and a low forecast of $219.00.

The average price target represents an 8.74% increase from the last price of $234.81. Of those 15 analysts, ten rated “Buy”, five rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $260 with a high of $315 under a bull scenario and $150 under the worst-case scenario. The firm gave an “Overweight” rating on the international beverage alcohol company’s stock.

“We remain Overweight Constellation Brands (STZ) as we see STZ’s valuation as attractive relative to growth peers, and not reflecting re-accelerating and above consensus beer depletions in F2H21, a solid long-term HSD% beer topline growth outlook, and potential beer margin upside relative to conservative STZ guidance,” Morgan Stanley’s Mohsenian added.

“Not only is STZ’s beer business rebounding, but it will also become a larger piece of the corporate mix post the divestiture of low-end wine brands to Gallo. We also expect a return to share repurchases in FY22 with strong debt paydown and EBITDA growth to be another positive catalyst, helping ease historical concerns around capital allocation.”

Several other analysts have also updated their stock outlook. Jefferies raised the stock price target to $300 from $276. JP Morgan upped the price target to $264 from $263. Truist lowered shares from a “buy” rating to a “hold” rating and set a $240 target price. Wells Fargo & Company raised their target price to $265 from $250 and gave the stock an “overweight” rating. UBS Group raised their target price to $256 from $238 and gave the stock a “buy” rating.

Check out FX Empire’s earnings calendar

Corona Beer Maker Constellation’s Shares Hit Record High on Strong Earnings; More Upside Likely

New York-based Fortune 500 international beverage alcohol company Constellation Brands’ shares hit a record high on Thursday after the company reported better-than-expected earnings in the fiscal third quarter of 2021.

The corona beer marker reported a profit of $3.09 per share in the third quarter ended November 30, 2020, beating the Wall Street estimate of $2.40 per share, up from $2.14 per share profit seen in the same period a year ago. Constellation Brands posted revenues rose 22% to $2.44 billion, beating the market expectations by over 7%.

Constellation Brands (STZ) delivered strong 44% EPS growth driven by robust beer shipments (+27%) as manufacturing supply comes online and the company works to address inventory out of stocks at retail. Underlying consumer demand also improved, with depletions up 12% in the quarter. Guidance comes up, while the company also introduced a new $2 billion share buyback authorization,” said Vivien Azer, equity analyst at Cowen and company.

The producer and marketer of beer, wine, and spirits forecast 2021 EPS on a comparable basis of between $9.8 and $10.05 per share. That was higher than the market expectations of $9.44. The company expects fiscal 2021 net beer sales growth as much as 9% but forecasts net sales of wine and spirits to decline by 9% to 11%.

Following the earnings result, Constellation Brands shares soared as much as 7.6% to record high of $240.76 on Thursday. However, the stock rose 15.4% in 2020.

“We plan to raise our $226 fair value estimate by a mid-single-digit percentage to reflect time value and stronger near-term beer shipments as the firm continues to rebuild the inventory deficit caused by the production shutdown in Mexico last March. The shares now appear fairly valued to us, but the quality in the business remains as clear as ever and we’d be happy long-term holders,” said Nicholas Johnson, equity analyst at Morningstar.

Constellation Brands Stock Price Forecast

Morgan Stanley gave a base target price of $260 with a high of $302 under a bull scenario and $154 under the worst-case scenario. The firm currently has an “Overweight” rating on the beverage alcohol company’s stock.

Several other analysts have also recently upgraded their outlook. Citigroup raised the price target to $244 from $220. Cowen and company upped the price objective to $275 from $240. Jefferies increased the stock price forecast to $276 from $273. Evercore ISI raised the target price to $275 from $270. RBC upped the price objective to $262 from $243.

Thirteen analysts who offered stock ratings for Constellation Brands in the last three months forecast the average price in 12 months at $228.17 with a high forecast of $273.00 and a low forecast of $154.00.

The average price target represents a -0.31% decrease from the last price of $228.87. From those 13 equity analysts, nine rated “Buy, three rated “Hold” and one rated “Sell”, according to Tipranks.

Analyst Comments

“We expect a re-acceleration to +HSD% beer depletions growth in 2H21 after COVID-related impacts drove a slowdown to +MSD% in 1H21. Our expected improvement is driven by the resolution of beer out-of-stocks, improving shelf-space and market share trends for Constellation Brands (STZ) high-velocity products, as well as innovation contribution (Corona Hard Seltzer),” said Ricky Goldwasser, equity analyst at Morgan Stanley.

“Our robust +HSD% LT beer topline CAGR is driven by favourable sub-category positioning (high-end beer), advantageous demographics (skew to Hispanics), solid pricing, and innovation. Our ~6% 3-year STZ corporate organic sales forecast is above the ~4% growth at beverage peers.”

Check out FX Empire’s earnings calendar

Earnings to Watch Next Week: Carnival, RPM, Constellation Brands and Walgreens Boots Alliance in Focus

Earnings Calendar For The Week Of January 4

Monday (January 4)

IN THE SPOTLIGHT: CARNIVAL

Carnival, the world’s largest cruise ship operator, is expected to report a loss for the third consecutive time in the fourth quarter. The Miami, Florida-based company’s revenue will plunge ​nearly 100% to $142.09 million from $4.78 billion posted in the same period a year ago. Carnival is expected to report a loss of $1.84 per share, worse compared to a profit of 62 cents per share registered in the same quarter last year.

“We think the cruise industry will be one of the slowest sub-sectors to recover from the COVID-19. Cruising needs just not international travel to return, but ports to reopen, authorities to permit cruising, and the return of customer confidence,” said Jamie Rollo, equity analyst at Morgan Stanley.

“We expect cruising to resume in January 2021, and only expect FY19 EBITDA to return in FY24 given historically CCL has lacked pricing power, and EPS to take even longer given dilution of share issues and higher interest expense. We see debt doubling in FY21 vs FY19 due to operating losses and high capex commitments, and leverage looks high at 4-5x even in FY23-24e, so we see risk more equity might need to be raised,” Rollo added.

According to the mean Refinitiv estimate from eleven analysts, Carnival Corp is expected to show a decrease in its fourth-quarter earnings to -186 cents per share. Wall Street expects results to range from a loss of $-2.10 to ​a loss of $-1.64 per share, Reuters reported.

Tuesday (January 5)

No major earnings scheduled for release.

Wednesday (January 6)

IN THE SPOTLIGHT: RPM INTERNATIONAL

RPM International, manufacturer of specialty chemical product lines, including high-quality specialty paints, protective coatings, roofing systems, sealants, and adhesives, is expected to report a profit of $1.0 in the fiscal second quarter of 2021, up from $0.76 reported in the same quarter last year.

The specialty chemicals company’s revenue could grow more than 4% year-on-year to $1.46 billion.

“Nearly 1/3 of sales are related to U.S. housing and home improvement (the second highest in the industry behind Sherwin-Williams). This continues to be our preferred coatings end market as it benefits from COVID-19 driven home improvement demand, which we think is sustainable. Importantly, RPM has no meaningful auto, aerospace exposure, but does have US infrastructure/construction exposure which could benefit from stimulus policy,” noted Vincent Andrews, equity analyst at Morgan Stanley.

“RPM’s MAP self-help program offers an offset to COVID-19 challenges. Meaningful opportunity remains for improvement in margins, free cash flow conversion, and return of capital to shareholders. Management highlighted upside to MAP targets on the recent conference call,” Andrews added.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 6

Ticker Company EPS Forecast
RPM RPM International $1.00
MSM MSC Industrial Direct $1.08
UNF UniFirst $1.68
AUOTY AU Optronics $0.09

Thursday (January 7)

IN THE SPOTLIGHT: CONSTELLATION BRANDS, WALGREENS BOOTS ALLIANCE

CONSTELLATION BRANDS: New York-based Fortune 500 international beverage alcohol company is expected to report a profit of $2.40 in fiscal third quarter, up from $2.14 per share seen in the same quarter a year ago, which would indicate a positive year-over-year growth rate of more than 12%.

The leading beverage alcohol company’s revenue could grow more than 12% year-on-year to $2.26 billion.

“We believe the focus of Constellation Brands’ FQ3 EPS will be on accelerating and above consensus beer depletions to +8.3% y-o-y in FQ3 (vs. 5% in F1H21) with improving beer out-of-stocks, as well as a beer shipment recovery after the under-shipment in F1H21. We also expect an update on beer depletion trends in December, with solid U.S. scanner data trends but likely weakening on-premise trends with more on-premise restrictions, particularly in California (about a quarter of Constellation Brands’ volumes),” said Dara Mohsenian, equity analyst at Morgan Stanley.

“Additionally, we believe investors will focus on beer margins, which we believe could surprise to the upside in FQ3 (we are 20 bps above consensus on beer margins and 2.3% above consensus on beer profit) and in F2H21, with Constellation Brands full year FY21 guidance of flat beer margins implying -160 bps of y-o-y margin declines in H2, with our estimates above guidance at -20 bps y-o-y,” Mohsenian added.

WALGREENS BOOTS ALLIANCE: The largest U.S. drugstore chain is expected to report a profit of $1.03 in fiscal first quarter ended November 2020, representing a year-over-year plunge of -25.6%. The retail pharmacy provider’s revenue could grow about 2% year-on-year to $34.93 billion.

“When Walgreens provided 2021 guidance back on October 15th, management didn’t include any negative impact from additional lockdown measures in Europe or changes to utilization patterns in the US including higher demand for flu vaccines in 1Q but softer demand for cough, cold, and flu products. To reflect how the environment has changed, we have updated our estimates. For 1Q, we now model EPS of $0.98 from $1.14 prior and versus consensus’ $1.03 (range $0.97 – $1.08). Our changes are primarily driven by our estimate of international retail segment sales down -20% y/y and -4.5% sequentially,” said Ricky Goldwasser, equity analyst at Morgan Stanley.

“While we are lowering our 2021 estimate to $4.55 from $4.70, our numbers include only the additional hiring of pharmacy technicians throughout the year but not the benefit associated with administrating the vaccines to the general populations. We think the benefit could be as high as a $1.00 – $1.40 split between 2HF21 and 1HF22. In comparison, the consensus is $4.82 and guidance of low single-digit y/y growth implies a $4.78 to $4.87 range.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 7

Ticker Company EPS Forecast
STZ Constellation Brands $2.40
WBA Walgreens Boots Alliance $1.03
CAG Conagra Foods $0.73
HELE Helen Of Troy $3.01
AYI Acuity Brands $1.83
BBBY Bed Bath & Beyond Inc. $0.17
MU Micron Technology $0.69
DCT DCT Industrial Trust -$0.01
WDFC Wd 40 $0.87
PSMT PriceSmart $0.67

Friday (January 8)

No major earnings scheduled for release.

Beer Maker Constellation Brands’ Fiscal Q3 Earnings To Be Solid; Shares To Rally Further In 2021

New York-based Fortune 500 international beverage alcohol company Constellation Brands is expected to report a profit of $2.40 in fiscal third quarter, up from $2.14 per share seen in the same quarter a year ago, which would indicate a positive year-over-year growth rate of more than 12%.

The leading beverage alcohol company will report its financial results for its fiscal third quarter ended November 30, 2020, on Thursday, January 7, 2021, before the open of the U.S. markets.

“We believe the focus of Constellation Brands’ FQ3 EPS will be on accelerating and above consensus beer depletions to +8.3% y-o-y in FQ3 (vs. 5% in F1H21) with improving beer out-of-stocks, as well as a beer shipment recovery after the under-shipment in F1H21. We also expect an update on beer depletion trends in December, with solid U.S. scanner data trends but likely weakening on-premise trends with more on-premise restrictions, particularly in California (about a quarter of Constellation Brands’ volumes),” said Dara Mohsenian, equity analyst at Morgan Stanley.

“Additionally, we believe investors will focus on beer margins, which we believe could surprise to the upside in FQ3 (we are 20 bps above consensus on beer margins and 2.3% above consensus on beer profit) and in F2H21, with Constellation Brands full year FY21 guidance of flat beer margins implying -160 bps of y-o-y margin declines in H2, with our estimates above guidance at -20 bps y-o-y.”

It is worth noting that Constellation Brands said on Friday that the U.S. Federal Trade Commission approved the sale of the company’s lower-price wine and spirits portfolio to E. & J. Gallo Winery. The deal is slated to close the week of January 4, 2021.

Constellation Brands shares closed 0.35% higher at $218.21 on Wednesday; the stock is up about 15% so far in 2020.

Analyst Comments

“We expect investor focus with FQ3 EPS will likely be on beer depletion growth and the forward outlook, as well as beer margins, both of which we expect to be solid, and any early tone on the FY22 outlook. Our FQ3 EPS estimate is $2.41 (including Canopy equity income losses), or $2.60 excluding Canopy. We believe the $2.38 consensus estimate is not fully comparable given the inconsistency in consensus estimates on the inclusion of Canopy losses. We expect the market to be most focused on beer depletion trends and beer margins, and more importantly the outlook for FQ4 and any tone on FY22,” said Dara Mohsenian, equity analyst at Morgan Stanley.

“We forecast +14.4% y-o-y corporate Constellation Brands (STZ) organic sales growth in FQ3 on a +1.7% prior-year comparison driven by +22.1% organic topline growth in beer, due to an assumed a shipment catch-up in FQ3 (MSe of ~1,150 bps), after shipments were below depletions by ~1,750 bps in F1H21 due to production limitations at STZ’s Mexican production plants given government-mandated COVID-19 restrictions.”

Constellation Brands Stock Price Forecast

Fourteen analysts who offered stock ratings for Constellation Brands Sciences in the last three months forecast the average price in 12 months at $224.29 with a high forecast of $250.00 and a low forecast of $154.00. The average price target represents a 2.79% increase from the last price of $218.21. From those 14 equity analysts, ten rated “Buy”, three rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $240 with a high of $280 under a bull scenario and $138 under the worst-case scenario. The firm currently has an “Overweight” rating on the beverage alcohol company’s stock.

“Our $240 PT is based on $228/shr for core Constellation Brands (ex-Canopy) based on ~21.5x FY22e EPS plus ~$12/shr for Constellation Brands’ (STZ) Canopy investment (33% discount to market value). Our 21.5x target multiple is slightly below STZ’s ~22x last 3-year NTM P/E average,” Morgan Stanley’s Mohsenian added.

Several other analysts have also recently commented on the stock. Constellation Brands had its price target increased by stock analysts at JP Morgan to $248 from $218. The firm currently has an “overweight” rating on the stock. UBS Group increased their price objective to $238 from $220 and gave the company a “buy” rating. Citigroup increased their price objective to $209 from $200 and gave the company a “neutral” rating in October.

We think it is good to buy at the current level and target $250 as 100-day Moving Average, and 100-200-day MACD Oscillator signals a strong buying opportunity.

Upside and Downside Risks

Risks to Upside: Improving beer category growth trends, STZ beer market share upside, greater innovation incrementality (eg Corona Hard Seltzer), beer margin upside, FX, commodities, and upside from STZ’s Canopy stake – highlighted by Morgan Stanley.

Risks to Downside: Decelerating category growth trends, weaker STZ market share, competitive entries in beer, Canopy stock price downside, capital allocation risk, COVID-19 impact, and consumer trade-down in beer.

Check out FX Empire’s earnings calendar

The Week Ahead – US Jobs Report, Fed Minutes, Global PMIs, UK Q1 GDP in Focus

US employment reports (June) – 02/07

After the loss of a record 20m jobs in April, expectations were high that May’s non-farm payrolls report would produce further job losses in the millions. This turned out to be far from true, as the numbers for May confounded expectations with 2.5m jobs added, breaking another record for jobs gained in the process. We’ve seen significant divergence in the wider health of the US economy and ergo the labour market in recent weeks.

It would appear that the return of furloughed employees in May helped dilute the effect of the mass job losses in April, with the resulting upturn in some of the consumption data, like retail sales, pointing to a decent economic rebound. The big question is whether this rebound can continue into June, at a time when continuing claims remain stubbornly high, close to the 20m level. Expectations are for this trend to continue, not only in the official non-farm payrolls, but also in the ADP report, which is due on Wednesday. Estimates are for 3.6m jobs to be added back to the US labour market in Thursday’s non-farms, with the ADP report predicted to show job gains of 2m. The unemployment rate is expected to fall back to 12% from 13.3%.

US Federal Reserve minutes – 01/07

the US Federal Reserve rate-meeting in June turned out to be every bit as dovish as expected. Fed chair Jay Powell expressed particular concern about inequality, which he said could continue for the next four decades, and that millions of people could be out of work for some time. Against such a dark outlook he went on to say that it wasn’t the Fed’s role to care about asset prices and whether they were too high, saying the central bank’s main role was to support the US economy and keep the financial system afloat.

Despite some encouraging economic data since the 10 June meeting, Mr Powell has remained insistent that it’s too early to draw too many conclusions this early in the crisis. Wednesday’s minutes should offer insight into the discussions over various measures taken by the FOMC, including their concerns about a second wave and the health of the US banking system. In the face of consumer and business defaults, it will be interesting to discover whether there was any discussion over the recent surprise intervention in the corporate bond market, which many considered unnecessary.

UK Final GDP (Q1) – 30/06

Final Q1 GDP numbers are unlikely to tell us anything new about the UK economy’s performance at the beginning of the year. The economy was slowing even before the March lockdown, largely due to widespread flooding in February, which hit consumer spending. On a quarterly basis, the economy is expected to contract by -2%, and on an annual basis by -1.7%. The lockdowns that started across Europe in March are expected to result in big declines in both imports and exports, which are expected to fall -10.8% and -5.3% respectively.

Global Manufacturing PMIs – 01/07

The manufacturing sector has proved to be much more resilient than the services sector, even though it has still suffered from the economic shutdowns of the past few weeks. Any rebound here is likely to be muted, given that services activity remains subdued. Backlogs of existing products, such as unsold cars and other manufactured products, will need to be worked off before manufacturing can restart in earnest. There should be improvements from the levels in May, if last week’s flash PMIs from the US, UK, Germany and France are any guide.

Global Services PMIs (June) – 03/07

After the horror show of the recent record low levels in April’s services purchasing manager indices (PMI) numbers, there’s been a steady recovery, with the rebound in May expected to gain further traction in the June data, as the various economies continue their reopening processes. Last week’s flash PMIs from Germany, France and the UK would appear to bear this out, despite concerns about a second wave of infections prompting some concern.

The biggest fear remain around the tourism sector for Spain and Italy, who rely so much on tourism in their services sector, and who are accelerating the opening of their economies to try and generate some form of revenue this year. The flash PMIs showed a continuation of the improvements from May, and are expected to come in at 50.3, 45.8 and 47 respectively for Germany, France and the UK, though there could be upward adjustments. Spain and Italy are also expected to improve from 27.9 and 28.9 respectively in May, but the figures won’t change the prospect of a significant economic contraction in Q2.

Sainsbury’s Q1 (FY21) results – 01/07

Supermarkets have been one of the few businesses that have managed to avoid the worst of the coronavirus pandemic. While supermarket peer, Tesco, attracted criticism for not deferring its dividend, Sainsbury’s was slightly more cautious when it released its full-year numbers at the end of April, deferring a dividend decision until the end of the year. A £500m increase in costs has offset the spike in grocery sales as a result of panic buying in March and beginning of April, while additional safeguarding measures for its staff has also acted as a headwind.

That spike in sales continued into May with an 11% rise in sales year-on-year, as shoppers gravitated towards the big two supermarkets on the basis of a wider range of products and bigger spend. It also helped that Sainsbury’s online operation, due to its Argos acquisition, has a lot more resilience, but there are still weaknesses in its proposition. Unlike Tesco, it has held on to its bank, and with a tough macroeconomic outlook that could be a drag on profitability, though it does have the added cushion of a £450m saving in business rates. It’s clear that Sainsbury’s new CEO, Simon Roberts, will need to do a lot better than his predecessor if he wants to close the gap with Tesco in the years ahead.

Constellation Brands Q1 (FY21) results – 01/07

The closure of bars, pubs and restaurants will have hit sales across all of its brands, even accounting for increased sales from supermarkets, off-licences and liquor stores, as a result of the various lockdowns. In March, Constellation Brands pulled its guidance for the upcoming year in the wake of the uncertainty over coronavirus, despite beating Q4 earnings. The company is also behind Corona beer, which has seen sales fall over its name association with the virus. A particular drag on its profitability was its stake in Canadian cannabis company, Canopy Growth, after it posted a full-year loss of $576m. To offset this, Constellation CFO Gareth Hankinson said the company expects to receive $850m from the sale of Gallo Wines. Despite lockdowns globally, Q1 profit is estimated to come in at $2.10 a share.

Germany Unemployment (June) – 01/07

Having been lauded for both its medical and fiscal response to the coronavirus crisis, Germany has been fortunate that the economic damage in terms of unemployment appears to have been limited. Since March, unemployment has only risen from 5% to 6.3%, which seems extraordinarily low when you consider the economic damage wrought across Europe in recent weeks. Over the last two months, claims for unemployment have risen by 610,000, which in a country of 80 million seems on the low side, and these figures could escalate in the coming months.

FedEx Q4 (FY20) results – 30/06

FedEx suspended its full-year outlook in March, citing the significant impact of coronavirus, despite posting an increase in quarterly revenue that beat market expectations. The loss of its Amazon contract was a big blow earlier in the fiscal year, however revenue still remained fairly resilient. On the flip side, the enforced shutdowns have seen an explosion in online shopping, which should translate into a significant pickup in deliveries across all of its regions. Even in freight you would expect to see a rebound, as companies safeguard their supply chains. This should see profit come in above Q3, with expectations of $1.87 a share, up from $1.41.

Japanese Tankan survey (Q2) – 01/07

With the Japanese economy just coming out of a state of emergency at the same time as fluctuating infection rates, it’s hard to get a gauge of how business optimism is likely to change in the months ahead. This week’s latest Tankan survey will have to deal with the prospect that economic activity could take a lot longer to return to normal, with the possibility that the 2021 postponement of the Olympics could turn into a wholesale cancellation, unless the Japanese government can get on top of the wider infection rate. All of the main surveys are predicted to see even larger declines than in the first quarter, though remaining well above the worst levels in the wake of the 2008 financial crisis, with manufacturing much more pessimistic than the non-manufacturing surveys.

For a look at all of today’s economic events, check out our economic calendar.

By Michael Hewson (Chief Market Analyst at CMC Markets UK)