STZ Constellation Brands
Cash-rich beer franchise priced as no-growth; fair value close to market, upside needs volume recovery.
The story
Constellation is now essentially a pure-play US imported beer franchise (Modelo, Corona, Pacifico) with exclusive US rights, Mexican brewing scale and industry-leading margins near 30%, after selling off its mainstream wine business. The moat is real but the business is maturing: Hispanic consumer softness, tariff pressure on aluminum and imports, and secular beer volume decline have pushed revenue lower. Revenue is now shrinking slightly, cash flow is strong, and the company is in a cash-return phase, with leverage near 10B of net debt.
I kept the drivers from my previous take except Y1 growth, which moves from +0.5% to -1%. TTM revenue fell again to 9.06B as beer depletions stayed weak and the wine divestitures took revenue out. The 30% margin target is still below the 31.7% TTM margin, which leaves room for tariff and cost pressure. Sales-to-capital of 1.0 reflects incremental brewery capex, not the 0.49 figure on the historical capital base, which is inflated by goodwill. The 2.5% terminal growth assumes the mature beer franchise grows with US nominal GDP.
Value drivers
| Revenue growth (Y1) | -1.0% |
| Terminal growth | 2.5% |
| Forecast horizon | 8y |
| Target operating margin | 30.0% |
| Years to target margin | 3 |
| Sales-to-capital | 1.00 |
| Beta | 0.75 |
| Failure probability | 2.0% |
| Cost of capital (WACC) | 7.7% |
| Terminal WACC | 8.4% |
Valuation bridge
| PV of explicit FCFF | 11.41B |
| PV of terminal value | 16.00B |
| Equity value | 16.31B |
| ÷ shares → per share | $95.50 |
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 8.97B | -1.0% | 31.2% | 2.06B | 0 | 2.06B | 1.92B |
| 2 | 8.92B | -0.5% | 30.6% | 2.02B | 0 | 2.02B | 1.74B |
| 3 | 8.92B | 0.0% | 30.0% | 1.98B | 0 | 1.98B | 1.58B |
| 4 | 8.97B | 0.5% | 30.0% | 1.99B | 44.61M | 1.94B | 1.45B |
| 5 | 9.06B | 1.0% | 30.0% | 2.01B | 89.66M | 1.92B | 1.33B |
| 6 | 9.19B | 1.5% | 30.0% | 2.04B | 135.83M | 1.90B | 1.22B |
| 7 | 9.38B | 2.0% | 30.0% | 2.08B | 183.83M | 1.89B | 1.13B |
| 8 | 9.61B | 2.5% | 30.0% | 2.13B | 234.38M | 1.90B | 1.05B |
Key risks
- Prolonged weakness among Hispanic consumers and in beer volumes overall
- Tariffs on Mexican imports and on aluminum squeezing margins
- High leverage (about 11B of debt) limiting flexibility if cash flow slips
Catalysts
- Depletion trends stabilizing and Modelo/Pacifico regaining share
- Buybacks and deleveraging funded by lower brewery capex