Today, Constellation Brands Inc (STZ, Financial) experienced a slight decline of 1.24% in its stock price, yet over the past three months, it has achieved a gain of 6.22%. With an Earnings Per Share (EPS) of 9.38, the question arises: is Constellation Brands modestly undervalued? This article delves into the valuation of Constellation Brands, encouraging investors to consider the analysis that follows.
Company Overview
Constellation Brands is a premier purveyor of alcoholic beverages, primarily known for its top-selling Mexican beer brands like Modelo and Corona, which generate 80% of its revenue. The company also holds a portfolio of wine and spirits brands, though it has recently streamlined its focus on these areas. With exclusive U.S. distribution rights for its Mexican beer brands, Constellation Brands has limited exposure to international markets. Additionally, it has a 36% stake in Canopy Growth, a Canadian cannabis producer, and a joint venture with Owens-Illinois in Mexico. Currently priced at $255.55, Constellation Brands has a market cap of $46.80 billion, with a GF Value estimated at $286.8, suggesting the stock might be modestly undervalued.
Understanding GF Value
The GF Value is a unique measure that estimates the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance forecasts. This value suggests a fair trading price for the stock. If Constellation Brands' stock price significantly deviates from this GF Value, it might indicate that the stock is either overvalued or undervalued, affecting potential future returns. Currently, the GF Value indicates that Constellation Brands is trading below its intrinsic value, which could mean higher future returns relative to its business growth.
Financial Strength and Stability
Investing in companies with robust financial health reduces the risk of capital loss. Constellation Brands, however, presents a mixed financial picture. With a cash-to-debt ratio of 0.01, its financial strength is weaker than 94.74% of its peers in the Beverages - Alcoholic industry. This metric, along with its fair overall financial strength rating of 5 out of 10 from GuruFocus, suggests cautious consideration.
Profitability and Growth Prospects
Constellation Brands has maintained profitability over the past decade, with an impressive operating margin of 31.82%, ranking it higher than 93.87% of its industry counterparts. The company's revenue growth rate over the past three years stands at 11.2%, indicating a solid capacity to expand its business operations. However, its EBITDA growth rate is slightly less competitive.
Examining the relationship between the Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC) reveals that Constellation Brands creates value for its shareholders, as its ROIC of 10.88 exceeds its WACC of 6.96.
Conclusion
In conclusion, Constellation Brands Inc (STZ, Financial) appears modestly undervalued based on the GF Value, with fair financial health and strong profitability indicators. Investors interested in a deeper exploration of Constellation Brands' financials can view its 30-Year Financials here. For those seeking high-quality companies with potentially above-average returns, consider exploring the GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
