Investing.com -- Constellation Brands faced dual downgrades from Jefferies and JPMorgan (NYSE:JPM) on Monday, citing weak performance, deteriorating consumer demand, and future uncertainties.
Jefferies downgraded Constellation to Hold from Buy, lowering the price target to $201 from $310, pointing to the company's recent struggles, including a broad miss across all segments and reduced guidance.
They highlighted that beer depletions grew by 3.2%, falling short of the expected 4.3%. Jefferies expressed concern about the impact of Hispanic unemployment, noting the company's explanation seemed overly simplistic. They cautioned that STZ shares might remain discounted until there is a clear re-acceleration in growth, labeling the stock as a "show-me story."
Jefferies also pointed out the challenges from broader economic pressures, such as potential tariffs and ongoing wildfires in California.
They emphasized that while Constellation remains a cash-generating business with strong brands, the current headwinds, including beer category weakness and increased competition, could keep shares trading below intrinsic value until uncertainties are resolved.
Similarly, JPMorgan downgraded Constellation to Neutral from Overweight, citing a "dry outlook and limited visibility."
They noted a significant drop in consumer demand, particularly among low-income and Hispanic consumers, who account for around 50% of STZ's beer volume. JPMorgan highlighted management's cautious tone during their earnings call, reflecting ongoing challenges and reduced consumer spending.
Additionally, JPMorgan flagged broader industry pressures, including reduced alcohol consumption and potential regulatory scrutiny following the U.S. Surgeon General's advisory linking alcohol to cancer risk.
They also warned of risks from potential Mexican beer import tariffs and stricter immigration policies, which could impact consumption.