Goldman Sachs Comment on Constellation Brands' (STZ) Q1

Goldman Sachs maintained a Neutral rating on Constellation Brands (NYSE: STZ) with a modified price target of $97.00 (from $94.00). The change follows strong Q1 results and guidance.

"Depletion growth of 7.9% was slightly below our estimate but pricing growth came in better and recent Nielsen measured-channel data points to continued broad-based strength for STZ’s beer portfolio," said analyst Judy E. Hong. "While comps become more challenging in the back-half, we believe high-single-digit depletion growth and 2 2.5% pricing should still be achievable. Beer margins also ramping up faster than expected; an update on packaging savings opportunities and further capacity expansion plans likely forthcoming – STZ noted that it is working on both glass sourcing and capacity expansion long-term."

"We continue to see meaningful long-term margin upside potential for STZ, but additional capital investment may be required to capture lower packaging cost upside as well as to expand brewery capacity (either at Piedras Negras or elsewhere). Better wine profitability, but likely transitory- segment EBIT margins expanded by almost 300bp as favorable SG&A timing and a ‘make whole’ payment from inventory destocking flattered margins. This favorability is likely to reverse in coming quarters, but LSD price/mix and shipment growth should generate ‘good enough’ LSD-MSD EBIT growth," added the analyst.

For an analyst ratings summary and ratings history on Constellation Brands click here. For more ratings news on Constellation Brands click here.

Shares of Constellation Brands closed at $90.45 yesterday.

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