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Why Constellation Brands Stock Fell 16.6% in May

By Joe Tenebruso – Jun 10, 2019 at 3:00PM

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Trade war fears spooked investors.

What happened

Shares of Constellation Brands (STZ -0.70%) declined nearly 17% last month, according to data provided by S&P Global Market Intelligence, after trade tensions between the U.S. and Mexico threatened to derail the beer giant's growth.

So what

Constellation Brands entered May with strong momentum following a more than 20% gain in April. Investors were pleased with the company's strong fourth-quarter results -- which were boosted by gains related to its equity stake in cannabis producer Canopy Growth -- as well as Constellation's plans to sell part of its wine and spirits business to E. & J. Gallo Winery for $1.7 billion.

Yet in May, the stock shed most of those gains on fears that President Donald Trump's threats of tariffs on Mexican goods would dent Constellation Brands' profits. As much as 75% of Constellation's beers are imported from Mexico, according to Morgan Stanley, so if tariffs on Mexican imports were to be raised to 25% -- as Trump threatened -- it could cut Constellation Brands' earnings by 19%. Other analysts noted that the impact could be even larger.

An intact beverage can, a partially crushed beverage can, and a fully crushed beverage can

Tariffs could crush Constellation Brands' earnings. Image source: Getty Images.

Now what

Constellation Brands' stock has rebounded by about 9% so far in June. Concerns of a trade war with Mexico are fading after Trump announced that the U.S. would halt plans to impose tariffs in return for tougher immigration enforcement. The deal lessens the risk to Constellation Brands' profits. And with the threat of tariffs now muted, investors can turn their focus to the company's core growth drivers -- which appear quite favorable.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.

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