Why This Constellation Brands Analyst Sees Beer Rebound Ahead

Beer maker Constellation Brands, Inc. (NYSE: STZ) is showing early signs of a rebound after COVID-19 forced a shutdown of its Mexican brewery, Morgan Stanley said in an upgrade note.

The Constellation Analyst: Dara Mohsenian upgraded Constellation Brands from Equal-weight to Overweight with an unchanged $203 price target.

The Constellation Thesis: Constellation's beer sales started to show signs of growth over the last few months, and the momentum seems to be sustainable, Mohsenian said in an upgrade note.

Specifically, data compiled by Morgan Stanley points to 19% growth in Constellation's U.S. beer sales for the two-week period ended Oct. 17.

If accurate, Constellation's two-week period would mark an acceleration in growth over 10% in July, 12% in August and 14% in September, the analyst said.

As the beer company's product availability improves, Constellation should benefit from a "quick rebuild" in shelf space, he said. 

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Encouragingly, sales of the top-performing 40% of Constellation's beer brands rose 31.7% in October, while the bottom 60% performers reversed a "severe" 22% decline in July, Mohsenian said.

The recent momentum prompted the research firm to revise its back half 2021 sales model from up 5.2% to up 8%.

Finally, investors should take advantage of the stock's "compelling entry point" ahead of a reacceleration in growth in the back half of 2021 and into 2022, the analyst said.

The stock's multiple of 13.3 times 2022 EBITDA does not reflect expectations for a "robust" 6% topline growth profile, he said. 

STZ Price Action: Shares of Constellation Brands were trading higher by nearly 4.28% Tuesday at $183.85