00:00:00
Warren Buffett, the most successful
00:00:02
investor of our lifetime, made a massive
00:00:04
move in his position in Constellation
00:00:05
Brands, and I can't wait to reveal it to
00:00:07
you. So, is Constellation Brands a buy
00:00:10
at 165 a share? And if you want to build
00:00:13
indestructible generational wealth, is
00:00:15
Constellation a good choice as a
00:00:16
long-term investment? The only way to
00:00:18
know is via fundamental analysis to find
00:00:20
the intrinsic value. I spent the last
00:00:22
week putting together a full fundamental
00:00:24
analysis of Constellation brands based
00:00:26
on their recently reported 2024 results
00:00:29
trading at 165 per share. I have a buy
00:00:31
rating on Constellation stock. In my
00:00:33
research, I discovered six things that
00:00:35
got me very excited and five red flags
00:00:37
to watch out for with Constellation
00:00:39
Brands. So, what did I discover? What's
00:00:41
my value for Constellation Brand stock?
00:00:43
And what is an ideal entry point should
00:00:45
you decide to become a Constellation
00:00:47
shareholder? I'm Ken Freeman. of 20
00:00:48
years of Wall Street experience in
00:00:50
investment banking and hedge funds, and
00:00:52
I train analysts at the top banks on
00:00:54
Wall Street. In this video, I will cover
00:00:56
Constellation's recent results and what
00:00:58
everyone is missing, what I think about
00:01:00
Constellation stock and what my analysis
00:01:02
uncovered, what Wall Street's smart
00:01:03
money says and how it can impact your
00:01:05
portfolio, and how you can use this
00:01:07
information to build wealth, and what
00:01:08
you must do if you decide to buy. If
00:01:10
you're enjoying this, please smash that
00:01:12
like button. While Consolation Brands
00:01:14
beat analyst estimates for revenues and
00:01:16
earnings, the stock dipped on a softer
00:01:18
outlook due to several transformations
00:01:20
that will hurt short-term and help
00:01:22
longer term. Let's cover the red flags
00:01:24
first. Every single Corona, Medel, or
00:01:27
Pacificico you drink is brewed at just a
00:01:29
few plants in Mexico. If weather,
00:01:31
politics, or construction delays hit
00:01:33
those sites, US shelves could run dry
00:01:35
overnight.
We're an American company. We
00:01:38
are invested in Mexico because we are
00:01:40
selling authentic Mexican brands. These
00:01:43
are these are not brands in the same way
00:01:44
that you're not making champagne in the
00:01:47
United States or you're not making
00:01:48
tequila in the United States or you're
00:01:50
not making New Zealand Savio Blanc in
00:01:52
the United States.
Over the last 5
00:01:54
years, the wine and spirits business has
00:01:56
gone from 32% to just 16% of overall
00:01:59
sales. Management has been focused on
00:02:01
moving towards higherend premium brands
00:02:03
which should bear fruit next year. We
00:02:06
expect significant improvements in the
00:02:08
performance of our wine and spirits
00:02:10
business beyond fiscal 26
00:02:13
following the anticipated closing of the
00:02:15
2025 wine defenses transaction that is
00:02:19
primarily centered around the sale of
00:02:21
the remaining mainstream wine brands in
00:02:23
that portfolio. A fresh US tariff on
00:02:26
imported canned beer could shave a
00:02:28
dollar on every 12-pack or squeeze
00:02:31
margins if consolation has to eat the
00:02:33
cost. management has already cut profit
00:02:36
outlook for fiscal 2026 because of the
00:02:38
duty.
Our main involvement has been
00:02:40
around the whole uh aluminum tariff. Um
00:02:44
and then you have obviously the tariffs
00:02:46
related to our wine business from both
00:02:47
Italy and from uh New Zealand. Um we're
00:02:51
we're trying to keep our focus on what
00:02:53
we can control uh and we don't control
00:02:55
that issue. Constellation invested four
00:02:57
billion in the Canadian cannabis company
00:03:00
back in 2018 due to the tremendous
00:03:02
growth opportunity. This has been a
00:03:05
horrible idea after multiple impairments
00:03:07
and poor results. This experiment has
00:03:09
gone up in smoke. When you are a beer,
00:03:11
wine, and spirits company, stick to what
00:03:13
you know and avoid the shiny objects.
00:03:15
Rules for life. Young adults under age
00:03:17
35 are drinking less and less frequently
00:03:20
than two decades ago. But this is
00:03:22
counterbalanced by an increase in
00:03:24
drinking for those aged 55 and older.
00:03:27
This has driven the focus towards
00:03:28
high-end, high- growth, high margin
00:03:31
premium offerings for the company.
00:03:33
Here's what got me really excited.
00:03:35
Constellation is the number one brewer
00:03:36
and seller of imported beer in the US
00:03:38
market. Modello Espeial is still the
00:03:41
number one beer in America by dollar
00:03:43
sales, while Pacificico and Victoria
00:03:45
were the top two fastest growing major
00:03:48
imported beer brands. Frankly,
00:03:49
Pacificico is my go-to whenever I'm
00:03:52
having Mexican food.
And there's no beer
00:03:55
uh of size that has the growth profile
00:03:57
that Pacificos had. It was up 16% last
00:04:00
year.
Construction of a brand new
00:04:02
modular brewery in Veraracruz, plus
00:04:04
expansions at Nava and Oberone boost
00:04:06
capacity and diversify beyond a single
00:04:09
site. More plants mean fewer headaches
00:04:11
if one facility hits a snag. As we
00:04:13
continue to invest primarily in the
00:04:15
modular development of our third brewery
00:04:18
in Veraracruz and modular additions at
00:04:21
our existing facilities in Mexico,
00:04:23
products like Modello Spiked Awas
00:04:25
Frescas and Corona non-alcoholic landed
00:04:28
in one of the fastest growing selling
00:04:30
lists of their categories. Fresh flavors
00:04:32
keep younger drinkers in the franchise
00:04:34
and open new sales beyond beer. We
00:04:37
remain focused on driving distribution
00:04:39
gains, on launching disciplined
00:04:41
innovation, and on deploying incremental
00:04:44
marketing investments to support the
00:04:46
growth of our beer business, all while
00:04:48
continuing to deliver best-in-class
00:04:51
operating margins.
After selling off
00:04:53
low-end labels, the wine unit now leans
00:04:55
on high-end names like Robert Mandavi,
00:04:58
The Prisoner, and Kim Crawford, which
00:05:00
carry higher margins. Management expects
00:05:02
this premium portfolio to generate
00:05:04
higher growth and higher margins next
00:05:06
year.
We expect significant improvements
00:05:09
in the performance of our wine and
00:05:10
spirits business beyond fiscal 26.
00:05:13
Famous value investor Bill Miller who
00:05:15
beat the S&P 500 for 15 consecutive
00:05:18
years used to look at five and 10-year
00:05:20
lows as a stock screener rule.
00:05:23
Consolation is trading at a 5-year low.
00:05:25
So, we're presented with a juicy
00:05:27
potential opportunity.
Take it or leave
00:05:29
it. This is what everyone is missing. If
00:05:32
you invested $1 in Berkshire Hathway at
00:05:34
the outset, it would be worth over
00:05:36
$55,000
00:05:38
today and you would have beaten the S&P
00:05:40
500 by $140 times.
That is a big number.
00:05:46
Buffett doubled his investment in
00:05:48
Consolation Brands, spending nearly $1
00:05:50
billion to buy 6.4 million more shares.
00:05:54
When Buffett makes a big move like this,
00:05:55
it always catches my attention, and it
00:05:58
should for you, too. So, what do I think
00:05:59
about consolation stock? Let's cover
00:06:01
that next. When I look at any stock, I
00:06:04
let the numbers tell the story. And that
00:06:05
involves looking at the company's
00:06:07
financial statements. Would you buy a
00:06:08
house without knowing the size,
00:06:10
location, dimensions, or condition?
Um,
00:06:13
that is exactly what you're doing when
00:06:15
you buy a stock without understanding
00:06:16
the three financial statements. If you
00:06:18
want to see how I teach the world's top
00:06:20
financial analysts on Wall Street, check
00:06:22
out my school community, Win Like Wall
00:06:24
Street. Just scan the QR code on the
00:06:26
screen. The balance sheet shows us how
00:06:28
the business is funded. If assets grow
00:06:30
faster than liabilities, equity
00:06:32
increases and we win. The company has
00:06:34
done an excellent job managing working
00:06:36
capital, which consists of accounts
00:06:37
receivable, inventories, and accounts
00:06:39
payable. We measure this effectiveness
00:06:41
via the cash conversion cycle, which
00:06:43
shows how long it takes to sell
00:06:45
inventory, collect from customers, and
00:06:47
pay suppliers. A lower number means
00:06:49
faster velocity, and this shows that the
00:06:51
company is really managing working
00:06:53
capital effectively. The company has
00:06:55
reduced debt by close to $1 billion
00:06:57
since 2022. Cutting debt and using cash
00:07:00
from operations shows solid fiscal
00:07:02
management. While retained earnings has
00:07:04
declined from 2020 to 2022, it's back on
00:07:07
the upswing. Increasing retained
00:07:09
earnings means the core equity value is
00:07:11
growing, which we want to see. So,
00:07:13
what's the takeaway? Despite reworking
00:07:15
its portfolio to divest of craft beers,
00:07:17
cannabis, and low-end wine brands, the
00:07:19
balance sheet is stable, and the move
00:07:21
towards premium offerings is starting to
00:07:23
show. The income statement shows us if
00:07:25
the company is generating profits. We
00:07:27
want to see revenues grow faster than
00:07:28
expenses, which will grow profits. The
00:07:30
way we determine how effective a company
00:07:32
is at generating profit is via margin.
00:07:35
Revenues minus expenses equals income.
00:07:37
Income over revenues equals margin. If a
00:07:39
company has higher revenues and lower
00:07:41
expenses, it will have higher margins.
00:07:42
If revenues grow faster than expenses,
00:07:45
margins will get bigger or expand, which
00:07:46
is what we want to see. While we don't
00:07:48
see the rapid growth that we typically
00:07:50
see with a tech company, growth is
00:07:51
steady and consistent without much
00:07:53
volatility. This makes it much easier to
00:07:56
model and makes intrinsic value easier
00:07:58
to predict with more certainty. When
00:08:00
making beer, wine, and spirits, input
00:08:02
costs fluctuate constantly and they can
00:08:04
be very hard to manage. So, we look at
00:08:06
gross profit to judge the effectiveness
00:08:08
at managing these fluctuations.
00:08:10
Constellation Brands has done an
00:08:12
excellent job maintaining gross margin
00:08:14
about 53%. While there was a postcoavid
00:08:16
dip, it has been on a nice upswing since
00:08:19
2022. Two sizable impairments occurred
00:08:21
in 2021 due to Canopy Cannabis and in
00:08:24
2024 due to the wine reshuffleling.
00:08:26
Impairments are writedowns of previous
00:08:28
acquisitions and we don't like seeing
00:08:30
this. The good news is that instead of
00:08:32
throwing good money after bad,
00:08:33
management has decided to pull the plug
00:08:35
in order to adapt to the changing market
00:08:37
and position the company for solid
00:08:39
future growth. So, what's the takeaway?
00:08:42
Solid and consistent growth, margin
00:08:44
expansion, and devestature of poor
00:08:46
performing investments position the
00:08:48
company well for future growth and
00:08:50
prosperity. The cash flow statement
00:08:52
tells us where the cash is generated by
00:08:53
the company. And there are three
00:08:55
buckets. Operating, which is the cash
00:08:57
the company generates internally,
00:08:59
investing, which is the cash demanded
00:09:00
for long-term growth. Financing, which
00:09:02
is the cash the company generates
00:09:04
externally. When we add these together,
00:09:06
we get the net change in cash. We want
00:09:08
to see companies generating cash, making
00:09:09
this positive, not losing cash, which
00:09:11
would make this negative. Free cash flow
00:09:13
has remained steady over the last 5
00:09:15
years, which helps us with our valuation
00:09:17
because it's going to make future cash
00:09:19
flows easier to predict. Having made
00:09:22
over 20 acquisitions and divestatures
00:09:24
over the last 5 years, the lack of
00:09:27
volatility in free cash flow is quite
00:09:29
remarkable and rarely seen. Capital
00:09:31
expenditures are investments in
00:09:33
property, plant, and equipment, the
00:09:34
seeds of future growth. Capex is steady
00:09:37
and growing methodically and with the
00:09:38
buildout of the Veraracruz Brewery over
00:09:40
the next two years, more capacity will
00:09:42
be coming online to manage growth moving
00:09:44
forward. Constellation Brands has
00:09:46
returned $7.6 billion to shareholders
00:09:49
over the last 5 years and they maintain
00:09:51
their dividend through co. While
00:09:53
shareholders haven't seen price
00:09:54
appreciation, the company has still
00:09:56
managed to return capital which is a
00:09:58
very positive sign. So what's the
00:10:00
takeaway? steady and growing free cash
00:10:02
flow, methodical capbacks, and capital
00:10:04
being returned to shareholders. All
00:10:07
positive signs for a company ready for a
00:10:09
prosperous and abundant future. So, what
00:10:11
do I think about consolation brand stock
00:10:13
and what should you do? I'll get into
00:10:15
that, but let's go through my valuation
00:10:17
first.
Let's see it.
On Wall Street, we
00:10:19
build a discounted cash flow model to
00:10:21
measure the intrinsic value of
00:10:22
companies. Because companies generate
00:10:24
cash flow and we projected the three
00:10:25
financial statements. We could take
00:10:27
these future cash flows, discount them
00:10:28
back to today to get a current intrinsic
00:10:30
value for the company. We cannot do this
00:10:32
type of valuation with crypto, baseball
00:10:34
cards, or art because they have no cash
00:10:36
flows. If you want to learn how to build
00:10:37
financial models like we do on Wall
00:10:39
Street, scan the QR code on the screen
00:10:41
to join my school community, Win Like
00:10:43
Wall Street. Also, you could check out
00:10:45
the step-by-step video I did on building
00:10:47
a DCF model, which includes an Excel
00:10:49
file. The link to that video appears
00:10:51
above and is in the description. As you
00:10:53
can see on the left, we take specific
00:10:55
line items that we projected from the
00:10:56
three financial statements. We use these
00:10:58
line items to calculate free cash flow
00:11:00
to the firm or FCFF. To this, we add a
00:11:03
terminal value, which is the value from
00:11:04
the end of the model out to infinity
00:11:06
because the company does not stop
00:11:08
operating when our model ends in 5
00:11:10
years. We discount these cash flows back
00:11:12
to today to get to total enterprise
00:11:13
value. To get to equity value, we strip
00:11:16
out the debt. We add the cash. We strip
00:11:17
out non-controlling interest. If we add
00:11:19
associate investments, that gives us an
00:11:21
intrinsic equity value of $39.9 billion.
00:11:24
We divide by the current shares
00:11:25
outstanding. It gives us an implied
00:11:27
share price of $224 compared to the
00:11:30
current share price of 164.449. That's a
00:11:33
36% discount, which is a solid buy
00:11:36
rating. On Wall Street, if a stock is
00:11:38
trading at greater than a 20% discount,
00:11:40
it's considered a buy because it
00:11:42
provides us with a margin of safety.
00:11:44
I'll give you my thoughts on how to play
00:11:45
Constellation Brand stock later on in
00:11:48
the video. So, what does Wall Street
00:11:49
have to say about Constellation Brands?
00:11:51
Let's cover that next. The consensus
00:11:53
among analysts is that downside is
00:11:55
limited and negative news is already
00:11:57
priced in. Wells Fargo has an overweight
00:11:59
rating with a target of 196. They say
00:12:02
that despite near-term headwinds,
00:12:04
Constellation's liquidity and guidance
00:12:06
lift merit conviction and downside is
00:12:10
limited. RBC has an outperform rating
00:12:12
with a target of 233. They highlight
00:12:15
industry-leading volume growth in the
00:12:17
beer segment and vast runway in high-end
00:12:20
wines and spirits as reasons for their
00:12:22
outperform rating. Goldman Sachs has a
00:12:24
buy rating with a target of 260. They
00:12:27
said that premium spirits momentum and
00:12:29
resilient beer pricing underpin their
00:12:32
optimism. Constellation Brands cash flow
00:12:34
profile remains best-in-class. Cap IQ
00:12:37
gives me a sense of how other analysts
00:12:39
on Wall Street view the company. 25
00:12:41
analysts cover consolation brands on
00:12:43
Wall Street. The target price is from a
00:12:45
low of 170, which is a 3% increase, to a
00:12:48
high of 300, which is an 82% increase.
00:12:52
The median is 210, which is a 28%
00:12:54
increase. The overall rating on a scale
00:12:56
of 1 to 5 is 1.96, which is an
00:12:59
outperform rating.
You should seek the
00:13:00
advice of investment professional
00:13:01
always. I do not know your individual
00:13:02
financial situation. This content is
00:13:03
meant to educate and is not investment
00:13:05
advice. That being said, as a result of
00:13:07
Buffett's doubling of his stake and this
00:13:09
analysis, I currently do own shares in
00:13:12
Constellation Brands. If you decide to
00:13:14
buy Consolation Brands and become a
00:13:16
fellow shareholder like me, I'll tell
00:13:17
you exactly how to build a position,
00:13:19
which I'll reveal shortly. Back in
00:13:21
April, the company reposition its wine
00:13:23
and spirits business, divesting of
00:13:25
mainstream labels to double down on
00:13:27
higher growth, higher margin brands
00:13:29
priced at over $15 per bottle. and that
00:13:32
is aligned with consumer-led
00:13:34
premiumization trends. Q4 results
00:13:37
highlighted a meaningful sequential
00:13:39
acceleration in onremise volumes, places
00:13:42
like bars, restaurants, and duty-free,
00:13:44
signaling a post-pandemic hospitality
00:13:46
revival that could drive outsiz beer
00:13:49
segment growth in 2025. The 2024 10K
00:13:53
outlines plans to expand omni channel
00:13:55
capabilities and extend into select
00:13:57
international markets, laying the
00:13:59
groundwork for incremental net sales
00:14:01
growth beyond fiscal year 2026 as direct
00:14:04
to consumer travel, retail, and
00:14:06
e-commerce accelerate. Constellation
00:14:09
Brands hit a 52- week low of 15935 in
00:14:12
midJune 2025 and it's up 3% since then.
00:14:16
My model shows a value of 224, which is
00:14:19
a 36% discount at current levels. On
00:14:22
Wall Street, we buy with a margin of
00:14:23
safety of at least 20%. So,
00:14:25
Constellation Brands is a solid buy at
00:14:28
current levels. And if you do decide to
00:14:30
add it to your portfolio, this is what
00:14:32
you should do. Decide how much capital
00:14:34
you want to allocate to the position. I
00:14:35
typically choose 10% as my max, but
00:14:38
start small and build over time. Utilize
00:14:40
limit buy orders so that you're not
00:14:41
chasing the stock. Break your purchases
00:14:43
into pieces so that you dollar cost
00:14:45
average into the position. Constellation
00:14:47
Brands owns Medello, the number one
00:14:49
selling beer in America, and it has one
00:14:51
of the fastest growing brands in
00:14:53
Pacifica. They have divested of low
00:14:55
margin craft beers, run-of-the-mill wine
00:14:57
brands, and spirits to focus on premium
00:15:00
high margin offerings. With Buffett
00:15:02
doubling his stake and improving metrics
00:15:04
all around, I'm very excited for the
00:15:06
future of Constellation Brand stock. If
00:15:08
you like this and want to see another
00:15:10
in-depth stock valuation, check out my
00:15:12
Alibaba video here or my Intel video
00:15:14
here. And if you found this valuable,
00:15:17
please share this with someone who you
00:15:18
think would enjoy this. As always, be
00:15:20
relentless.
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