Warren Buffett just invested $1.24 billion in Constellation Brands (STZ) by buying 5.62 million shares in late 2024, making his Berkshire Hathaway (BRK.B) the sixth-largest holder of Constellation stock. As shown in his company’s latest 13F filing, this was Buffett’s only new stock purchase during the fourth quarter.
In addition to buying Constellation shares, Berkshire sold off some of its bank stock investments, including Citigroup (C) and Bank of America (BAC) shares. Berkshire also sold off its stake in Ulta Beauty (ULTA).
Constellation Brands makes and sells beer, wine, and spirits worldwide, with businesses in the U.S., Mexico, New Zealand, and Italy. It owns popular brands like Corona, Modelo Especial, Robert Mondavi Winery, and High West Whiskey, making it one of America’s fastest-growing consumer goods companies.
Buffett’s investment in Constellation looks like his typical strategy of spotting valuable companies that others might have overlooked. The real question is: What exactly does the Oracle of Omaha see in this beverage giant that the market might be missing?
Let’s examine the underlying strengths that attracted Buffett to Constellation Brands.
About Constellation Brands Stock
Constellation Brands (STZ) stock is down nearly 21% in the year to date and nearly 30% over the past 52 weeks.
The company’s valuation metrics present a compelling case. With a market capitalization of $31.16 billion, Constellation trades at a forward price-earnings ratio of 12.77x, notably below the industry median of 16.07x. While its EV/EBITDA ratio of 11.07 sits slightly above the industry’s 9.90, this premium reflects the strength of its brand portfolio.
For income-focused investors like Buffett, Constellation’s dividend structure offers additional appeal. The stock provides a forward yield of 2.3% and pays quarterly dividends of $1.01 per share for an annual total of $4.04. This steady income stream, combined with the company’s market position and current valuation, presents an attractive investment opportunity.
Constellation’s January 2025 earnings report reveals resilience amid market challenges. Despite flat revenue of $2.46 billion missing the $2.53 billion analyst consensus, the beer segment maintained its impressive growth streak for 59 consecutive quarters, with revenue up 3%. The company posted earnings of $3.39 per share, with adjusted earnings at $3.25. The recent SVEDKA divestiture demonstrates strategic portfolio management.
Cash flow performance remains particularly strong, with year-to-date operating cash flow increasing 9% to $2.6 billion and free cash flow rising 13% to $1.6 billion. Through November 2024, the company returned $668 million to shareholders through share repurchases, underlining its commitment to shareholder value.
Constellation’s Recipe for Growth
Constellation Brands is adapting to changing drink preferences, which likely caught Buffett’s attention. The company has invested in Hiyo, a company making alcohol-free drinks with natural ingredients and health benefits. The company recently sold its SVEDKA vodka brand to Sazerac, choosing to focus on high-end wine and spirits. This move could lead to better profits, as premium brands typically bring in more money. It’s the kind of clear business strategy that Buffett often looks for in companies. CEO Bill Newlands emphasized that this shift aims to accelerate performance in the wine and spirits division.
The beer division remains its strongest asset, growing sales for 59 quarters straight. Constellation is now leading all beverage categories in sales growth, particularly with its Mexican beer brands. This consistent performance in beer shows why Constellation’s core business stays solid even when other parts face challenges. Modelo Especial has become the top-selling beer in America by dollar sales in 2024.
What Do Analysts Expect for STZ Stock?
Constellation Brands’ earnings estimates for fiscal 2025 show a company working through challenges while staying confident about its core strengths. The company expects reported EPS between $3.90 and $4.30, with comparable EPS projected at $13.40 to $13.80.
It also forecasts organic net sales growth of 2%-5%, largely driven by its strong beer business, which is expected to grow 4%-7%. On the other hand, the wine and spirits segment is predicted to decline by 5%-8%, reflecting the company’s focus on premium products over volume. Investors will be paying close attention when Constellation announces its earnings next.
Analysts remain positive about the stock’s potential. Analysts have a consensus “Moderate Buy” rating with a price target of $241.78, implying roughly 40% upside potential.
Citi’s lead beverages analyst, Filippo Falorni, has called Buffett’s investment in Constellation a “perfect example of value investing.” He points to the long-term strength of its premium Mexican beer brands like Modelo and Corona as key drivers behind the company’s future growth.
Conclusion
All things considered, Warren Buffett’s decision to invest in Constellation Brands highlights the company’s strong fundamentals, strategic vision, and potential for long-term growth. With a robust beer segment, ongoing portfolio optimization, and a solid dividend profile, STZ offers a compelling case for value and income-focused investors. Analysts’ optimistic outlook and Buffett’s endorsement suggest there’s more to this stock than meets the eye.
