Constellation Brands seen standing down on Monster Beverage pursuit
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Cowen kept Constellation Beverages (NYSE:STZ) locked in as its top pick in the beverage sector after taking in the company's recent update.
Constellation Brands (STZ) is noted to have finished FY22 with double-digit revenue growth in beer, as well as an impressive 40% EBIT margin.
Analyst Vivien Azer: "More importantly, guidance for beer suggested that margin headwinds in FY23 will be manageable, while the health of the top line remains intact. STZ announced a $500 mm ASR, reinforcing the underlying capital allocation strategy laid out last quarter."
Azer and team see the combination of the Sands family announcement on reducing their voting control of the company to 20% and continued use of cash for buybacks as evidence that large scale M&A is not a key priority for the beverage player. They agree that is an appropriate strategy as potential target Monster Beverage (MNST) is a large global operation, whereas STZ broadly runs a U.S.-focused operation, and has not had a great track record operating in international markets in wine.
Cowen has an Outperform rating on STZ and price target of $275, which works out to 22X the FY24 ex-Canopy EPS estimate.
See the current valuation metrics on Constellation Brands.