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Constellation Brands Could Rise 30% More on Its Beer Portfolio's Strength, Analyst Says

By Rich Duprey - Updated Apr 5, 2021 at 12:39PM

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The market is underestimating the value of its Corona and Modelo brands, he says.

Constellation Brands (STZ 1.78%) has nearly doubled in value over the past year as the prospects for bars and restaurants fully reopening improve and the potential for social gathering this year increases. But one Wall Street analyst believes the stock of the beer, wine, and spirits distributor isn't done rising just yet.

Jefferies analyst Kevin Grundy says Constellation's beer portfolio, which comprises the still fast-growing Corona and Modelo family of beers, remains one of the best in consumer staples.

Not only did Grundy keep his buy rating on the stock, but he also raised his price target from $276 per share to $300, a 9% increase -- and a 30% increase from where Constellation currently trades.

Beer bottles with limes

Image source: Getty Images.

The pandemic brought about a once-in-a-lifetime challenge to the alcoholic beverage distributor. While beer, wine, and spirits are often seen as recession-proof since people will drink regardless of the economic climate, the coronavirus outbreak closed bars, restaurants, and cafes, which are Constellation's primary sales outlets.

It also didn't help that travel and tourism were crushed as well, since those provide channels for special-occasion drinking.

Yet the Corona and Modelo brands, which account for over two-thirds of Constellation's revenue, held up well, growing by double-digit rates last year. And after introducing a Corona-branded hard seltzer early last year, it quickly grew to become the fourth largest brand on the market.

Grundy sees Constellation maintaining that kind of momentum, and he told investors in a research note that the company's beer portfolio can sustain 6% to 7% annual volume growth through 2025.

The stock trades at 24 times trailing earnings and 22 times next year's estimates, valuations that the analyst says don't reflect the strength of the beer business.

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