$STZ - CFRA MAINTAINS HOLD OPINION ON SHARES OF CONSTELLATION BRANDS, INC.
We raise our 12-month target by $15 to $250, based on a FY 26 (Feb.) P/E of 16.9x, a discount to its 5-year mean forward P/E of 21.6x. We increase our adjusted EPS estimates to $12.10 from $11.90 for FY 24, to $13.30 from $12.85 for FY 25, and introduce FY 26 at $14.75. STZ posts Aug-Q adjusted EPS of $3.70 vs. $3.17 (+17%), above the $3.37 consensus. The beat was driven by a stronger-than-expected top line, as net sales rose 7% to $2.84B ($14M ahead of consensus). STZ raised FY 24 adjusted EPS guidance to $12.00-$12.20 from $11.70-$12.00, ahead of the current consensus of $11.73, but the guidance raise was entirely the result of the fiscal Q2 beat, meaning STZ's earnings expectations for the final two quarters have actually gone down slightly. STZ traded -1% in the pre-market. While STZ has increased market share in recent months (Beer shipments were +8.7% Y/Y), we maintain a Hold as STZ is in the middle of a major capex cycle to expand to Beer capacity in Mexico, which should weigh on free cash flow.
