Constellation Brands (STZ 1.17%), one of the world's largest producers of beers, wines, and spirits, was considered a stable blue chip stock. But over the past three years, Constellation's stock declined more than 40% as the S&P 500 rallied over 70%.
Constellation lost its luster as its growth stalled out, it grappled with rising tariffs, and it racked up steep losses. But can it overcome those challenges over the next three years?
Image source: Getty Images.
Why did Constellation's growth cool off?
Constellation sells over 100 brands of alcoholic beverages. In fiscal 2025 (which ended this February), it generated 84% of its revenue from its beers (including Modelo, Corona, and Pacifico), 14% from its wines (including Kim Crawford, Ruffino 1887, and The Prisoner), and 4% from its spirits (including Casa Noble Tequila, Svedka Vodka, and High West Whiskey). Here's how those three core businesses fared over the past three fiscal years.
|
Metric |
FY 2023 |
FY 2024 |
FY 2025 |
|---|---|---|---|
|
Beer Revenue Growth |
11% |
9% |
5% |
|
Wine Revenue Growth |
(5%) |
(10%) |
(7%) |
|
Spirits Revenue Growth |
6% |
(7%) |
(11%) |
|
Total Revenue Growth |
7% |
5% |
2% |
Data source: Constellation Brands.
Constellation's beer business cooled off in fiscal 2024 and fiscal 2025 as it faced several major challenges. Younger consumers in the U.S., where it generates most of its revenue, drank less alcohol than previous generations. At the same time, many of its Hispanic consumers -- who accounted for about half of its beer sales -- reined in their spending as they dealt with immigration issues and other macro headwinds under the Trump Administration.
Rising tariffs on aluminum cans (which accounted for nearly 40% of its beer shipments from Mexico), supply chain constraints in Mexico (due to the Mexican government's cancellation of a planned brewery in 2020), and inflation also forced it to raise its prices. Those price hikes exacerbated its slowdown, even as it launched new types of alcoholic beverages (like hard seltzer) and alcohol-free drinks to reduce its dependence on traditional beers.
Its smaller wine and spirits segments also struggled as consumers not only drank less but shunned cheaper brands. To keep pace with that shift, it sold a lot of its lower-end wine and spirit brands to focus on its higher-end brands. But by right-sizing those two segments, it reduced their revenues and increased the weight of its struggling beer business.
Will Constellation grow again over the next three years?
In the first six months of fiscal 2026, Constellation's revenue fell 10% year over year as its sales of beer, wine, and spirits all declined. For the full year, it expects its beer sales to decline 2%-4%, its wine and spirits sales to plunge 17%-20% (on an organic basis), and for its total revenue to slide 4%-6% (on an organic basis).
Analysts expect its total revenue to drop 11%. However, they expect its revenue to stay nearly flat in fiscal 2027 and finally rise 3% in fiscal 2028 as its right-sized business grows again and faces fewer macro headwinds.
Constellation turned unprofitable on a generally accepted accounting principles (GAAP) basis in fiscal 2022 and fiscal 2023 as its investment in the Canadian cannabis company Canopy Growth (CGC 2.34%) backfired. It turned profitable again in fiscal 2024, but it posted another net loss in fiscal 2025 as it booked big impairment charges from its ongoing divestments.
But as it laps those challenges, analysts expect it to turn profitable again in fiscal 2026 and grow its GAAP earnings per share (EPS) by 18% in fiscal 2027 and 4% in fiscal 2028. On a non-GAAP basis, which tunes out all that noise, they expect its EPS to dip 4% in fiscal 2026, rise 8% in fiscal 2027 as its business stabilizes, but decline 2% in fiscal 2028.
We should take those estimates with a grain of salt, but they imply that Constellation can grow again by diversifying its beer portfolio, right-sizing its wine and spirits segments, and weathering the Trump Administration's tariffs and other macro headwinds.
Where will Constellation's stock be in three years?
Constellation's stock trades at just 12 times its forward adjusted earnings estimates and pays a forward dividend yield of 2.9%. That low valuation and attractive yield should limit its downside potential. However, its upside potential could also be limited until it proves that it can right-size its business and overcome its near-term challenges. So for now, I believe Constellation's stock will trade sideways over the next three years until it proves its wobbly business model is sustainable.
