Hold Rating for Constellation Brands Amid Divestiture Impact and Beer Segment Challenges

Analyst Bryan Spillane of Bank of America Securities maintained a Hold rating on Constellation Brands (STZ – Research Report), retaining the price target of $195.00.

Bryan Spillane has given his Hold rating due to a combination of factors impacting Constellation Brands. One of the primary considerations is the divestiture of the Svedka and 2025 Wine, which significantly affects the company’s gross profit. The sale of these assets has resulted in a substantial reduction in gross profit, with an estimated $287 million expected to be removed from the base in the upcoming fiscal year. Despite maintaining sales and operating profit estimates for the Wine & Spirits segment, adjustments were necessary to align with the divestiture’s impact.
Additionally, the Beer segment has faced challenges with product mix, which has been a consistent headwind to sales over the past few years. The mix impact, along with the slower growth in shipment volumes, raises concerns about the sustainability of beer gross margins in the long term. While there are new targets that appear more realistic and could enhance capital allocation, these factors collectively contribute to the decision to maintain a Hold rating for Constellation Brands.