Constellation Brands (STZ 1.41%), one of the world's largest producers of beer, wine, and spirits, might seem like a reliable long-term investment. But over the past five years, its stock slipped 8% as the S&P 500 advanced 86%.
Why did Constellation fizzle -- and could it be a winning investment over the next five years?
Image source: Getty Images.
What happened over the past five years?
Constellation sells more than 100 brands of alcoholic beverages. It generates most of its revenue and growth from its beer business, which includes popular labels such as Modelo, Corona, and Pacifico. Its top wine brands include Kim Crawford, Robert Mondavi, and The Prisoner; and its leading spirits include Casa Noble tequila, Svedka vodka, and High West whiskey.
In its fiscal 2025 (which ended in February), Constellation generated 83.7% of its revenue from beer, 14.2% from wine, and 2.1% from spirits. That was a significant shift from fiscal 2020, when it generated 67.3% of its revenue from beer, 28.4% from wine, and 4.3% from spirits.
From fiscal 2020 to fiscal 2025, revenue grew at a compound annual rate of 4%. But that growth was entirely driven by its beer business, which offset its weakening sales of wine and spirits.
|
Business Segment |
Fiscal 2021 |
Fiscal 2022 |
Fiscal 2023 |
Fiscal 2024 |
Fiscal 2025 |
|---|---|---|---|---|---|
|
Beer revenue growth |
8% |
11% |
11% |
9% |
5% |
|
Wine revenue growth |
(7%) |
(18%) |
(5%) |
(10%) |
(7%) |
|
Spirits revenue growth |
(8%) |
(25%) |
6% |
(7%) |
(11%) |
|
Total revenue growth |
3% |
2% |
7% |
5% |
2% |
Data source: Constellation Brands.
Constellation's wine and spirits business shrank during those five years as it divested dozens lower-margin brands -- including Clos du Bois, Black Box, and Paul Masson -- in a bid to expand its faster-growing premium brands.
However, the company's beer sales growth also decelerated over the past two years amid supply and capacity constraints in Mexico (which were exacerbated after local voters and Mexico's government blocked the company's plans to build a massive brewery in Mexicali), price hikes that reduced sales, and the broader weakness of the U.S. beer market -- which is struggling as today's younger consumers drink fewer alcoholic beverages than prior generations.
On the bottom line, Constellation turned unprofitable on a generally accepted accounting principles (GAAP) basis in fiscal 2022 and fiscal 2023 as the value of its investment in the Canadian cannabis company Canopy Growth withered. Constellation turned profitable again in fiscal 2024, but posted another loss in fiscal 2025 as the company booked a big impairment charge from the ongoing divestments of its lower-margin wine and spirits brands. On a non-GAAP basis, its comparable EPS grew at a compound annual rate of 9% from fiscal 2020 to fiscal 2025.
Constellation's near-term challenges
Constellation's core business seems stable, but President Donald Trump's tariffs on imports from Mexico could severely hamper the near-term growth of its beer business, which relies heavily on the Modelo, Corona, and Pacifico brands.
For fiscal 2026, management expects its organic sales to stay nearly flat -- in the range of down 2% to up 1% -- as growth of as much as 3% in beer sales offsets the double-digit percentage declines of its wine and spirit segments. It will continue to prune its wine and spirits portfolio to strengthen its higher-margin brands. But on the bottom line, Constellation expects its non-GAAP EPS to decline by 8% to 11% if the current 25% tariffs against Mexican imports (which mainly affect its canned beers) remain unchanged.
It could offset some of that pressure by shipping more of its beers in glass bottles, but roughly 39% of its beer shipments from Mexico come in aluminum cans. It also can't follow Coca-Cola's example and use more plastic bottles to dodge the tariffs, since plastic bottles affect the carbonation and taste of alcoholic beverages.
Constellation could attempt to pass the costs of those tariffs on to U.S. consumers by raising its prices, but the wobbly demand for alcohol among younger and lower-income consumers could sap its pricing power. Instead, it will likely need to rely more heavily on the premiumization of its wine and spirits portfolio to weather the near-term headwinds.
What will happen to Constellation over the next five years?
From fiscal 2025 to fiscal 2028, analysts expect Constellation's revenue to decline from $10.2 billion to $9.9 billion as it divests itself of more brands. However, they expect it to turn profitable again on a GAAP basis in fiscal 2026 and grow its EPS at a compound annual rate of 7% over the two years that follow.
Assuming Constellation's results are in line with those estimates, it continues to grow its EPS at a compound annual rate of 7% over the following three years, and that it still trades at 14 times forward earnings as of the beginning of its fiscal 2031 (in March 2030), its stock would rally by about 45% to nearly $250 over the next five years.
To deliver that decent gain, Constellation will have to overcome the tariff-generated headwinds while refining its wine and spirits portfolio. But the company might still underperform other consumer staples stocks that have more irons in the fire, or the S&P 500, which has generated an average annualized return of 10% since its inception.
