Monday saw Bernstein SocGen Group sustaining its positive stance on Constellation Brands (NYSE:STZ), reiterating an Outperform rating with a steady price target of $315.00. The target represents significant upside potential from the current price of $186.65, though InvestingPro data shows the stock has declined nearly 30% over the past six months. Despite acknowledging a series of unanticipated setbacks for the company, particularly in its beer segment, the firm maintained its optimistic outlook.
Constellation Brands reported a 3.2% growth in Q3 F25 depletions, falling short of Bernstein SocGen's expectations by 260 basis points and the consensus by 130 basis points. The growth figures varied across different brands, with Modelo Especial seeing growth over 3%, Modelo Chelada at 4%, Pacifico soaring by 20%, and Corona Extra experiencing a decline of 1%.
According to InvestingPro analysis, the company maintains a solid gross profit margin of 51.5% despite these challenges. The subdued spending and value-seeking behaviors among consumers of legal drinking age, which began in Q2, persisted into Q3, as noted by management.
The company's shipment growth of 1.6% also did not meet expectations, lagging behind by approximately 420 basis points, which resulted in Q3 beer net sales of $2,032 million. This figure was around 3.8% below Bernstein SocGen's projections and 2.0% under the consensus.
However, a beer gross margin of 53% surpassed both the firm's and consensus estimates. Operating income margin, on the other hand, did not meet expectations due to increased marketing spend and depreciation expenses, leading to an approximate 4.5% shortfall in operating income.
In light of these results, Constellation Brands adjusted its FY25 guidance downwards. For the beer segment, net sales growth is now anticipated to be between 4% and 7%, a decrease from the previously projected range of 6% to 8%. Operating income growth projections have also been revised to 9% to 12%, down from the initial forecast of 11% to 12%.
However, at the group level, the expected decrease in net interest expense has led to a comparable EPS guidance of $13.40 to $13.80, slightly reduced from the prior range of $13.60 to $13.80. InvestingPro subscribers can access 12 additional key insights about Constellation Brands, including detailed financial health metrics and Fair Value analysis, along with the comprehensive Pro Research Report available for this stock.
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