Constellation Cheered by Analysts on Beer Growth, Cannabis Hopes

(Bloomberg) -- Constellation Brands Inc. rose as much as 7.1 percent -- leading the S&P 500 amid a broad market slump -- as analysts applauded the alcoholic beverage maker’s earnings beat and forecast boost. Record beer margins and plans to raise prices bolstered confidence in the business’s growth prospects, especially with the upcoming holiday season. Wall Street was also impressed by the company’s defense of its $4 billion investment in Canopy Growth Corp., as Constellation called the cannabis market “potentially one of the most significant global growth opportunities of the next decade.”

Here’s what analysts are saying about the results:

Wells Fargo, Bonnie Herzog

Wells Fargo sees robust premium beer trends and market share gains, saying the company’s growth engine is well intact. The bank is bullish on the Corona line.

“STZ is clearly managing transport/marketing cost headwinds adeptly while continuing to drive significant growth in the high end segment of beer/wine.”

The strong quarter was “capped by a solid EPS & margin beat.”

Maintains outperform rating, price target $270

Cowen, Vivien Azer

“10% depletion growth was particularly encouraging given growing concerns around the health of the beer business in light of the significant cannabis investment this August.”

Wine and spirits sales were better than expected, led by the Corona and Modelo brands.

Negative risks “include lower-than-expected growth in beer and flat to declining growth in wine, beer margin below the company’s target, contracting wine margins, and a slower-than anticipated completion of brewery expansion.”

Reiterates outperform rating, price target $260

RBC Capital Markets, Nik Modi

“As we expected, Constellation’s core fundamentals are on track, including strong near-term beer margin expansion, which the buy side was worried about.”

The bank reiterated that continued beer margin expansion is not necessary for stock upside.

“We believe these results should put an end to the thought that the Canopy investment was somehow related to a deteriorating beer business.”

Reiterates outperform rating, price target $300

Goldman Sachs, Judy E. Hong

“Wine/Spirits sales beat on stronger shipment growth, but depletion was flattish, suggesting a sizable inventory benefit in the quarter.”

Maintains neutral rating, price target $239

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