It's been noted here that in many markets across the nation, Constellation's beer gross profits are overtaking MillerCoors and even A-B as the top supplier in distributorships. The promise of the Gold Network becoming the tail that wags the proverbial dog is increasingly becoming a reality.
But if you go above that level, the unevenness is even more striking. Consider that Constellation (STZ) is trading near its 52 week high at $210 a share, up nearly 70% from its 52 week low.
Its market cap is now at a whopping $42 billion.
Compare that to Molson Coors, which is trading at $83 a share, near its 52 week low, and has a market cap of only $18 billion, less than half that of Constellation's.
What that means is that Constellation has twice the buying power to scoop up acquisitions. While it's true Constellation has an extensive wine and smaller spirits portfolio while Molson Coors is a pure beer play, these days their stock price is focused on the beer side.
But Constellation is selling at a price to earnings ratio of 27x while Molson Coors trades at 8x. And Constellation's earnings per share are lower than Molson Coors'. So why is STZ's market cap and stock price so much higher?
The short answer is growth. The long answer is the Street's continued expectation of growth. But the stock is starting to look a little rich. As Morgan Stanley wrote last week, "We view STZ as more of a relative outperformer going forward, than an absolute shooting star. We now believe the magnitude of EPS upside vs consensus going forward has dissipated, even though we still expect positive EPS revisions, with our EPS only slightly above consensus," writes analyst Dara Mohsenian and team.
"We also point out that one of the key drivers of STZ's historical fundamental momentum, beer margin expansion, will likely dissipate going forward, as incremental beer productivity from newer production/procurement slows."
Source: Beer Business Daily
October 23, 2017
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