Constellation Brands Is On Trend, But Earnings Expectations Keep Credit Suisse At Neutral

Credit Suisse sees higher risk to Constellation Brands, Inc. (NYSE: STZ)'s earnings potentials until fiscal year 2018. Analysts Laurent Grandet and Clay Crumbliss also see pricing power as being pressured to retain volume growth. As a result, the analysts project EPS 2–3 percent below Street estimates.

Therefore, the analysts initiate the company's shares at Neutral with a price tag of $178, implying an upside potential limited by about 6.9 percent from Thursday's closing level. The last four quarters' EPS numbers suggest that the positive surprise slowed from 18.2 percent to 1.3 percent in the most recent quarter.

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"The $1 billion acquisition of Ballast Point gave Constellation access to the ultra-premium end of the craft brew market. We think Ballast Point has what takes to be among the craft winners in the longer term, but we see a number of risks that gives us pause, including plateauing craft category growth and the recent departure of Ballast Point founders and talent," the analysts told clients in a research note.

However, if Ballast Point outperforms, then it could lead to upside to the brokerage's investment thesis.

Referring to Corona and Modelo potentials, Credit Suisse thinks the expectations of these brands have already been factored into the stock. Therefore, the brokerage sees little growth potential from these two.

At time of writing, Constellation was down 0.88 percent at $165.

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