Shares of beverage maker Constellation Brands (NYSE:STZ) retreated 3.3% on July 3 following mixed results for the first quarter of Fiscal 2025. Goldman Sachs analyst Bonnie Herzog views the current pullback as a nice entry point for investors who seek to invest in stocks with a long-term, volume-led growth story and earnings compounder potential. Herzog maintained a Buy rating and $300 price target (19.8% upside potential) on STZ stock, citing three important structural tailwinds.
Constellation Brands is one of the largest producers of beer, wine, and spirits in the world. It has operations in the U.S., Mexico, New Zealand, and Italy. The company boasts some of the world’s most renowned names, including Corona, Modelo, Kim Crawford, Casa Noble, and Svedka.
Here’s Why Herzog Believes in Constellation Brands
Herzog believes that STZ is backed by three company-specific structural tailwinds that will boost its long-term volume growth. The analyst stated that roughly 20%-30% of STZ’s volume growth is driven by Hispanic consumers, one of the company’s core target consumers (over 50%). In Q1, brands such as Modelo Especial, Modelo Chelada, and Pacifico, which are greatly loved by Hispanic consumers, drove the above-average beer depletions. Depletion refers to the rate at which the beverages are sold at the retail level. This led to a 1.6 percentage points market share gain for STZ beer brands across total beer in Q1.
The second important aspect noted by the analyst is STZ’s solid distribution network, which supports roughly 40%-50% of its volume growth. According to the analyst, STZ secured a notable increase in the shelf space this spring, making it a top market share gainer for the Cinco de Mayo and Memorial Day holidays. Importantly, STZ is undertaking a five-year plan to pick up 500,000 new points of distribution in untapped markets in the U.S., with the potential to add $645 million in incremental revenue. Herzog notes that STZ’s beers have an average SKU (stock keeping unit) takeaway in dollar terms of 5x its rivals, making it attractive for retailers.
Lastly, the analyst pointed out STZ’s strong history of innovation, which drives the remaining 20% to 40% of the volume growth. In Q1, the company expanded its Modelo Aguas Frescas variety pack to 20 additional markets, covering 70%-75% of the total expected consumption. Moreover, Constellation Brands is testing its Corona Sunbrew in the Northeast, which the management expects to be a superhit brand. The analyst also cited management’s bullishness that STZ will be the biggest winner of the 4th of July holiday weekend.
All these factors have driven Herzog’s optimism for Constellation Brands stock, which is also supported by TipRanks Stock Analysis tool Bulls Say, Bears Say. In particular, Bulls have highlighted STZ’s upbeat performance, structural tailwinds that could fuel continued growth, and the company’s dominant position in the beer market.
Is STZ a Good Long-Term Investment?
Aside from Herzog, 15 other analysts who have recently rated STZ stock echo similar enthusiasm for the stock. On TipRanks, STZ commands a Strong Buy consensus rating based on 16 Buys and three Hold ratings. The average Constellation Brands price target of $287.29 implies 14.8% upside potential from current levels.
Ending Thoughts
Herzog’s conviction in Constellation Brands growth trajectory is backed by structural tailwinds that are specific to the company. This only implies that STZ is most probable to increase and capture a larger market share in the beverage industry. Furthermore, STZ pays a regular quarterly dividend of $1.01 per share and undertakes regular stock buybacks to reward its shareholders. Remarkably, STZ scores a Perfect 10! on TipRanks Smart Score rating system, implying that the stock is highly likely to outperform market expectations.
