On Tuesday, RBC Capital Markets sustained their positive stance on shares of Constellation Brands (NYSE:STZ), maintaining both their Outperform rating and the $308.00 price target for the company's shares.
The firm's analysis highlighted that STZ's shares have been underperforming due to subdued scanner data and concerns regarding potential policy changes from the incoming Trump administration, specifically regarding tariffs and immigration.
RBC Capital Markets anticipates that STZ shares will remain range-bound until there is clearer insight into the administration's policy plans and the company's possible countermeasures. Despite the current market challenges, the firm's channel checks suggest a depletion rate of approximately 3.5% for the quarter, which is marginally below the consensus.
The analysis by RBC Capital Markets acknowledges the strength of Constellation Brands' beer segment, but it also recognizes that the overall weakness in the consumer packaged goods (CPG) category is impacting growth.
The firm reiterates its confidence in STZ's fundamental business, especially within the beer division, citing factors such as market share gains, innovation, distribution achievements, and demographic advantages.
Looking forward, RBC Capital Markets expects Constellation Brands to achieve a compounded annual growth rate of 7-9% in beer top-line revenue over the next three years, with mid-single-digit volume growth and a normalized pricing strategy.
Nonetheless, the firm notes that the near-term focus on beer fundamentals is overshadowed by the uncertainty surrounding the new administration's policies and their potential effect on the company's revenue and profit margins.
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