10 Points from Beer Day, Credit Suisse Thoughts on Constellation Brands (STZ)
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Credit Suisse analyst Kaumil Gajrawala reiterated an Outperform rating and $260.00 price target on Constellation Brands (NYSE: STZ) after attending the company's beer day and walking away with 10 key takeaways:
1) Conversation with beer management team offered confidence in transition away from a two-brand house (Corona, Modelo) towards a multipronged market competitor (Corona franchise, Modelo franchise, products across alcohol).
2) Speakers included Bill Newlands (CEO), Jim Sabia (Beer Managing Director), Paul
Hetterich (Beer CEO), and Diego Reynoso (Beer CFO).
3) Capacity is unlikely an issue in the near-term to support HSD growth. We estimate capacity utilization rates touching ~90% by end of FY22 should decline to ~75% by the end of FY25 providing ample capacity breathing room.
4) Modelo's opportunity in Eastward expansion is sizable and will maintain its growth with a significant runway.
5) Company set an aspirational target for 20% market share over the long term, share is ~4% today.
6) Beer margin guidance is conservative with the biggest contraction since FY19, the analyst expects operating leverage and pricing to provide a sufficient offset and models FY22 beer gross margin of 40.1% (down -100bp).
7) Shelf space grew during the pandemic. Despite delayed or abandoned shelf re-sets,
Constellation grew shelf space by 5% in 2020.
8) Differentiation is required amidst alternative beverage alcohol (ABAs) and Corona’s unique Hispanic/beach heritage should be an asset as it expands across alcohol.
9) There was no discussion about repurchases but the analyst expects management to address the issue soon. On its last earnings call, management reiterated its commitment to return $5bn to and only 24% of this target has been met so far, largely through dividends.
10) The company is a recovery beneficiary with brand momentum, leaving the analyst positive on upside.
Shares of Constellation Brands closed at $234.60 yesterday.
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