We maintained our Neutral rating on
Constellation Brands Inc
) with a target price of $38.00, as increased promotional and
interest expenses continue to deter the profitability of the
However, it is encouraging to observe that the company's
continuous focus on brand building and initiatives to bring in
new products in its wine and spirits business are furnishing
favorable results. Owing to its strategic efforts, the company is
witnessing robust depletion trends and increasing market share in
the U.S. wine and spirits category.
Moreover, the company is enhancing its points of distribution
at retail and is well executing its strategic merchandising
initiatives that will facilitate it to augment sales.
Further, we believe that the acquisition of the remaining 50%
stake in Crown will enhance the company's market share in the
booming U.S. beer market and will be significantly accretive to
its earnings as Crown continues to deliver strong sales and
profitability. Management stated that Crown's performance has
exceeded the U.S. beer industry, and the business generated $788
million in sales, up 8% during the reported quarter.
However, Constellation Brands', which faces stiff competition
), posted second quarter adjusted earnings of 71 cents per share,
which fell 8% from the prior-year quarter as higher promotional
expenses and increasing interest expenses continue to deter the
profitability of the company. After witnessing flat sales
in the first quarter, top line showed a marginal increase of 1%
year over year to $698.5 million, and also came below the Zacks
Consensus Estimate of $710 million. In the first quarter too, the
company had missed the Zacks Consensus Estimate.
Moreover, Constellation Brands ended second-quarter 2013 with
a long-term debt of $3928.7 million, reflecting a
debt-to-capitalization ratio of 60%, which is substantially
higher, and could adversely affect the company's credit
worthiness and make it more susceptible to the macro-economic
factors and competitive pressures.
Currently, Constellation Brands holds a Zacks #2 Rank, which
translates into a short-term 'Buy' rating.
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