With only a handful of trading days left in the year, it's a great time for investors to look at the stocks they own and decide whether their performance has met expectations. While investors gravitate toward year-to-date returns, it's important to consider other factors -- like management shake-ups, revenue trends, recent acquisitions, and pending legal issues -- when determining if a company deserves a spot in your portfolio.
Today we'll take a look at wine maker Constellation Brands (STZ 0.83%) and examine why it was such a shining-bright star this year.
Industry dynamics
The alcoholic beverage industry is filled to the brim with brawling competition. Fickle consumers and challenging economic environments keep major players on their toes. Mega beer brewers took big swigs of acquisitions, as the beer industry continues to undergo massive consolidation. Meanwhile, the wine industry is more fragmented than beer and spirits, which generally command more brand loyalty.
Company happenings
Primarily a wine company with a much smaller spirits and beer portfolio, Constellation Brands produces Robert Mondavi, Ravenswood, and Simply Naked wines, Svedka vodka, and Black Velvet whiskey. The company derives 77% of net sales from North America. Due to its small international presence, European economic woes and slowing growth in China didn't affect New York-based Constellation.
The company planned to launch roughly 50 new wine brands and product line extensions in 2012, twice the number launched in 2011. Most recently, Constellation has zeroed in on incentives and price promotions to push wine sales. The company asserts that its focus on marketing and promotions for its new wine and spirits offerings are paying off. Specifically, management claims that new spirits product launches -- like flavored Svedka vodka and Black Velvet Toasted Caramel Whiskey -- have been "well received."
Beneficiary of big-beer wars
Belgium brewer Anheuser-Busch InBev (BUD 2.77%) had secured the coveted No. 1 and No. 2 beer brands for years, but lost the No. 2 position to Coors last year. It's been a knock-down, drag-out brawl between AB InBev and Molson Coors (TAP 0.63%) ever since. In April, AB InBev agreed to buy Dominican Republic's Cerveceria Nacional Dominicana. Molson Coors quickly countered with an announcement to buy Eastern European brewer StarBev.
Strangely enough, Constellation emerges a beneficiary of the ongoing beer wars and continued industry consolidation. AB InBev can't buy Constellation or even Crown Imports -- AB InBev's joint venture with Constellation -- outright. Doing so would create a market share position signaling red flags in the U.S. antitrust world. Instead, AB InBev announced in June that it would sell its stake in Crown to Constellation, which will solely distribute Mexican brewer Grupo Modelo SAB de CV's (NASDAQOTH: GPMCY) products in the U.S. Ever since the announcement, Constellation's shares have been hitting new highs.
With the deal, Constellation will import Corona, the leading import beer in 38 countries including the U.S. Constellation Brands will also gain rights to import Modelo Especial, considered Mexico's premium beer brand. Amazingly, Modelo Especial has enjoyed double-digit growth annually for the last 17 years. It's the No. 3 U.S. imported beer, behind Corona and Heineken NV's (HEINY 3.27%) Heineken. Thirty-five million cases of Grupo Modelo were sold last year, with the goal of growing the brand to 100 million cases. With 100% control of Crown Imports, Constellation projects its annual revenue to double.
Meteoric stock performance
So far this year, Constellation's stock price has increased 70%. Meanwhile, during the same period, the Dow Jones Industrial Average is up roughly 7%. The stock's 52-week range is $18.50 to $36.98, and with the stock currently trading at $35.55, it's flirting with the higher end of the range. Its price-to-earnings ratio is approximately 16, which is in line with the S&P 500's current P/E ratio, indicating the stock may be undervalued. Constellation doesn't pay a dividend.
Foolish bottom line
Undoubtedly, Constellation's stock hit it out of the ballpark this year. But will the company continue its meteoric rise? Do your own research, and determine whether this stock deserves a spot in your portfolio.
