Constellation Brands put up such disappointing quarterly results before Friday’s opening bell that we’re having second thoughts about whether the beer, wine and spirits stock still belongs in the portfolio. Net sales for the three months ended Nov. 30 were largely flat year over year, coming in at $2.46 billion, missing the $2.53 billion expected, according to analysts’ estimates compiled by LSEG. Adjusted earnings per share (EPS) of $3.25 in the company’s fiscal 2025 third quarter were a penny shy of last year and missed estimates of $3.31, LSEG data showed. Constellation Brands Why we own it : Constellation Brands’ beer franchise, which includes popular Mexican brands Modelo, Corona and Pacifico, is the growth engine and by far the most attractive part of the business. We continue to urge Constellation to concentrate on beer and divest its struggling wine-and-spirits unit. Competitors : Anheuser-Busch Inbev and Molson Coors Weight in Club portfolio : 2.34% Most recent buy : Dec. 31, 2024 Initiated: May 5, 2022 Bottom line This was not the quarter we were looking for — and unfortunately, we see little reason to defend Constellation as we now think that management’s previous optimism was misplaced — and they are only now taking a realistic view of the demand environment. We knew wine and spirits were struggling, but these numbers showed cracks in the company’s venerable Mexican beer franchise, which includes the Modelo and Corona brands. Whether it’s the impact of GLP-1 weight loss drugs, a preference from younger consumers for cannabis-based alternatives — or a combination of the two — it’s becoming clear the alcohol industry overall isn’t showing the growth we had expected. STZ 1Y mountain Constellation Brands 1 year When a stock is down double digits and you’re not itching to buy it, that’s usually a sign that it may be time to bail. In addition to the GLP-1 and cannabis concerns, there is added uncertainty from the expected policies of the incoming presidential administration of Donald Trump regarding immigration reform and trade tariffs. The fact that inflation-weary consumers’ pockets are also hurting is another factor. While Constellation has been known to weather all kinds of economic and political climates, the enormity of challenges lining up against the stock is evident in its more than 16% single-session decline at one stage during Friday trading near $180. Earlier on Friday, we downgraded Constellation shares to our 3 rating, meaning that we will look to sell into strength down the line, and we put our price target under review. We can now say we’re cutting our price target to $240 per share from $300. However, we may look to exit the position before seeing that level. Beyond the headline numbers, there really isn’t much in the quarter or the outlook to grasp on to for the bulls. Free cash flow slightly outpaced expectations but every other quarterly line item of importance came up short. The same dynamic goes for…
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