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Forget Boston Beer, Constellation Brands Is a Better Growth Stock

By Demitri Kalogeropoulos - Feb 8, 2021 at 11:40AM

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Your beer investing dollars will go further with Constellation Brands.

The pandemic hasn't been kind to most alcoholic beverage companies. With the cancellation of concerts, sporting events, and in-person shows, demand for on-premises drinking has plummeted. These declines were only partly offset by soaring sales for at-home consumption.

There were two standout performers in this tough environment. Both Boston Beer (SAM -4.44%) and Constellation Brands (STZ -0.77%) managed solid sales growth as their portfolios outperformed big beer giants like Molson Coors and Anheuser Busch InBev. But if you're trying to choose between these two successful businesses today, Constellation Brands is the better growth stock. Here's why.

Friends drinking beer together.

Image source: Getty Images.

More diversity

Boston Beer has been the clear growth winner in recent months. Its depletions, a measure of consumer sales, soared 40% through late September, while Constellation Brands expanded at a weaker, but still market-thumping, 7% (we'll learn how they both did later in the year when Boston Beer reports earnings in mid-February). Boston Beer is riding the runaway success of the Truly hard seltzer brand, which has been growing at near triple-digit rates through the pandemic.

Yet Constellation Brands' portfolio looks like the stronger growth bet over the long term. Its own new hard seltzer brand quickly became a top-seller in the niche last year. Powerhouse franchises including Corona, Modelo, and Pacifico routinely lead the wider beer industry in growth, too, meaning its overall sales are less dependent on a single product. The company, whose annual sales are about five times higher than Boston Beer's, is also diversifying into recreational marijuana. That move promises to start providing another stable earnings stream soon.

Sparkling finances

Constellation Brands is better at converting those sales into positive returns for investors. It boasts an operating margin nearly double Boston Beer's. The management team has a strong track record for allocating that excess capital, through game-changing purchases like the 2012 acquisition of imported Mexican beer brands and, more recently, bold bets on brewery capacity upgrades.

SAM Operating Margin (TTM) Chart

SAM Operating Margin (TTM) data by YCharts

Cash flow is a similar story, having doubled in the past five years compared to a 55% increase for Boston Beer. Constellation Brands also pays out a dividend that today yields just over 1.3%, compared to no dividend commitment from Boston Beer.

Put these trends together, and the total return prospects look brighter for Constellation Brands shareholders.

Valuation

Finally, your investing dollar goes further by owning Constellation Brands. Today you'd have to pay over 8 times the past year of sales to own Boston Beer, making it the most expensive industry participant by far. That valuation has surged in recent months, too, raising the risk that it might fall back down if growth doesn't live up to investors' high expectations. Constellation Brands' on the other hand, has a steadier value and isn't sitting at all-time highs.

SAM PS Ratio Chart

SAM PS Ratio data by YCharts

Sure, 2021 is likely to mark another year of industry-leading growth by Boston Beer and its Truly and Twisted Tea franchises. But Constellation Brands has several attractive factors going for it, including the potential for accelerating growth, rising margins, and increasing cash returns. Given the significant discount for the stock as compared to Boston Beer, the premium beer, wine, and spirits giant seems like the clear winner in this matchup.

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Stocks Mentioned

Constellation Brands, Inc. Stock Quote
Constellation Brands, Inc.
STZ
$245.52 (-0.77%) $-1.90
The Boston Beer Company, Inc. Stock Quote
The Boston Beer Company, Inc.
SAM
$319.17 (-4.44%) $-14.82
Anheuser-Busch InBev SA/NV Stock Quote
Anheuser-Busch InBev SA/NV
BUD
$54.19 (0.20%) $0.11
Molson Coors Beverage Company Stock Quote
Molson Coors Beverage Company
TAP
$55.76 (0.69%) $0.38

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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