Constellation Brands: Inventory Risks, Margin Pressures, and Still-Rich Valuation Support Continued Sell Rating

Analyst Peter Galbo from Bank of America Securities maintained a Sell rating on Constellation Brands and keeping the price target at $142.00.

Peter Galbo has given his Sell rating due to a combination of factors related to Constellation Brands’ underlying fundamentals and valuation. While the company delivered better-than-expected third-quarter earnings, largely driven by stronger beer and wine & spirits margins and some cost savings, he highlights that this upside is not enough to change the longer-term narrative. Importantly, management’s commitment to shipping closer to real consumption has resulted in shipments lagging depletions by several million cases year-to-date, which raises concerns about the sustainability of reported growth once inventory dynamics normalize. He also points to upcoming margin headwinds, as the company itself has flagged pressure on fourth-quarter beer margins from fixed-cost absorption even as volume declines are expected to ease.

Galbo maintains that, on a forward-looking basis, Constellation’s growth in sales and profits is weaker than that of global beer peers, which he believes warrants a valuation discount. His $142 price objective is based on an earnings multiple that is below global brewers but still above domestic peers, reflecting his view that the stock is not as inexpensive as some investors suggest. Given that Constellation is primarily a U.S.-focused business and still trades at a premium to a key domestic comparable despite slower growth, he finds the “cheap valuation” argument unconvincing. Taken together—inventory and shipment risks, anticipated margin pressure, and a valuation he sees as still rich versus its fundamentals—these factors support his continued Sell (Underperform) recommendation.

STZ’s price has also changed moderately for the past six months – from $170.340 to $140.490, which is a -17.52% drop .