Constellation Brands ((NYSE: STZ)) has long been celebrated as a dependable blue-chip stock, boasting a portfolio of over 100 brands in the beer, spirits, and wine sectors. Notably, it has proudly raised its dividend annually for an impressive 10 years. However, the past year has seen a significant downturn, with Constellation’s stock price plummeting nearly 30%. So, what went wrong, and can we expect a rebound in the next year? Let’s delve deeper.
Understanding Constellation’s Struggles Over the Past Year
Constellation Brands has grappled with four major challenges this past year:
1. Changing Alcohol Consumption Trends
Younger millennials and Gen Z consumers are increasingly opting for less alcohol than previous generations. This trend is raising alarms that the alcohol industry could face a fate similar to that of tobacco.
2. Tariff Troubles
Constellation is also significantly impacted by tariffs imposed by the Trump administration against Mexico, as its flagship brands, including Modelo, Corona, Pacifico, Fresca Mixed, and Casa Noble Tequila, rely heavily on Mexican production. Piper Sandler analysts project that these tariffs could potentially lower its earnings per share (EPS) by $3 to $3.75 in fiscal 2026—this represents a staggering 22% to 27% of its EPS forecast of $13.78 in fiscal 2025.
3. Declining Wine Sales
Once regarded as a robust sector for Constellation, wine sales have not been spared from the downward trend. The company reported a 9% decline in wine sales for fiscal 2024, followed by another 7% drop for fiscal 2025.
4. Bleak Near-Term Outlook
Looking ahead, the forecast for Constellation appears grim. For fiscal 2026, the company anticipates organic sales to remain flat (projecting between a decrease of 2% and an increase of 1%). The growth in beer sales (estimated between 0% and 3%) is expected to be overshadowed by significant declines in its wine and spirits segments, as the company divests weaker wine brands. Prolonged tariffs could result in an EPS plunge of 8% to 11%.
Looking Forward: Can Constellation Recover?
To re-stabilize its business and enhance margins, Constellation has decided to divest its lower-end wines (including Woodbridge, Meiomi, and Simi) while redirecting focus toward premium offerings like Kim Crawford and Robert Mondavi Winery. Furthermore, in a bid to capture the attention of younger drinkers, the company is investing in nonalcoholic beverages and lighter options, such as Modelo’s Aguas Frescas.
Despite the looming tariffs against Mexico, Constellation plans to invest around $2 billion into its Mexican production facilities through fiscal 2028 to enlarge its brewing capacity. It is also restructuring operations, seeking to shave off over $200 million in annual expenses by fiscal 2028. If these strategies yield results, Constellation anticipates organic sales growth between 2% and 4% for both fiscal 2027 and 2028. Analysts echo this optimism, forecasting a 9% and 6% EPS growth for the same periods, respectively.
What Does the Future Hold for Constellation’s Stock?
Currently, Constellation’s stock appears undervalued at 14 times its forward earnings, coupled with a respectable forward yield of 2.2%. The company has also repurchased approximately 2% of its shares over the past year and has authorized a substantial new buyback program worth $4 billion over the next three years.
If Constellation meets analyst expectations and maintains its 14 times forward earnings multiple by the start of fiscal 2027 (March 2026), its stock could see a modest rise of about 4%, landing around $193 per share in the coming year. While such growth may seem tepid, it indicates that the stock may be finding its footing despite ongoing tariff impacts.
Potential for a Bigger Comeback
However, should the U.S. government choose to lessen tariffs against Mexico and Canada, the landscape could shift dramatically. A higher valuation might become achievable, allowing for a greater than 4% rally in the next 12 months.
Should You Invest $1,000 in Constellation Brands Today?
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
