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.

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