While beverage giant Constellation Brands (STZ) struggled badly last year under the weight of a disappointing earnings result – along with political drama tied to President-elect Donald Trump’s proposed tariffs – STZ stock should be viewed as a bullish opportunity. Historically, major downturns are rare for the stock and recoveries are relatively quick. Therefore, I am bullish on Constellation Brands.
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On paper, the company suffered a decline against both profitability and sales targets. For the third quarter of Fiscal 2025, the beverage maker’s earnings per share (EPS) landed at $3.25, missing the estimate of $3.31. On the top line, revenue of $2.46 billion fell short of the target of $2.53 billion. However, what really aroused concern was a 14% decline in net sales in the Wine and Spirits segment.
When the dust finally settled for the business week ending January 10, STZ stock was down almost 19%. If that sounds alarming, it is. In the past five years, there was only one time when STZ stock suffered a worse weekly loss. Because of the rarity of such volatile events, however, I’m inclined to consider a long position, even with the many distractions.
Looking at STZ Stock as a Glass Half-Full
To be sure, taking a shot at STZ stock at the present juncture seems unusually risky. After having recovered from the impact of COVID-19, Constellation is on pace to return back to those levels. Further, with inflation fears back on, especially amid the red-hot jobs report, some analysts are becoming skeptical about consumers’ ability to keep opening their wallets. Naturally, Constellation’s business requires at least a modicum of consumer optimism.
Another note that has investors jittery over STZ stock is the geopolitical realm. President-elect Trump has talked tough regarding tariffs, which could easily impact Constellation’s business. The company sells Model, Corona, and Pacifico beer brands in the U.S., which are imported from Mexico. Given that presidential administrations historically attempt to foster warm ties with U.S. neighbors, the unusual matter adds more headaches for the beverage maker.
Still, Trump is often a speak first, think later type of instinctual leader. Therefore, his controversial statements can’t always be taken at face value. What’s more, the business itself is much more attractively priced. Right now, STZ stock trades at 12.05x forward earnings and 3.27x trailing-year sales. About a year ago, these metrics stood at 18.28x and 4.62x, respectively.
Statistical Evidence Favors Upside Speculation
Beyond the suddenly more attractive valuation is the statistical trend for STZ stock. While the weekly loss of nearly 19% represents an ugly matter, STZ has consistently proven it can bounce back from turmoil. Over the past five years, there have been 134 times out of 259 (or 51.74%) where STZ returned a positive figure over a four-week period. In other words, Constellation enjoys a natural upward bias.
However, whenever STZ stock suffers a weekly loss of 5% or greater, there is an overwhelming tendency for investors to buy the dip. Again, during the past five years, there have been 15 times when STZ incurred a 5% or worse loss over a one-week period. In the fourth subsequent week, there have been 12 instances (or 80%) when STZ popped higher.
To be fair, during 20% of the times that the bears take over, the median loss in the fourth week comes out to 11.49%. That’s significant, especially for STZ stock. Still, the point is that red ink is rare. If we’re playing the numbers game, it’s likelier that Constellation will rise from this mess. Should it do so, the median positive return clocks in at 5.79%.
Charting a Bull Call Spread for Constellation Brands
To sum up the bullish narrative for STZ stock, there’s a good chance, based on historical precedent, that a month from last Friday, Constellation will be up, potentially by around 6%. At the same time, there’s also a black swan risk in the off chance that STZ crumbles. Therefore, a capped-risk, capped-reward idea in the form of a Bull Call Spread options strategy could be interesting.
In a Call Spread, the trader buys a Call option and simultaneously sells a Call at a higher strike price for the same expiration date. The idea is to use the credit received from the Short Call to partially offset the debit paid for the Long Call. Stated differently, a Bull Call Spread allows an investor to discount their net long position.
Should statistical trends play out again, STZ stock may rise to $192.34 by the close of the February 7, 2025 session. Knowing this, a trader may sell the $190 Call as the short-leg component of a Bull call spread. It’s up to the trader’s risk tolerance, then, to decide what the long leg would be, whether it’s the $185 Call or lower.
Is STZ Stock a Buy, According to Analysts?
Turning to Wall Street, STZ stock has a Moderate Buy consensus rating based on 13 Buys, eight Holds, and zero Sell ratings. The average STZ stock price target of $244.75 implies 34.3% upside potential.
The Takeaway: Jumping on a Likely Rebound in STZ Stock
The recent volatility in Constellation Brands may have rattled investors, but historical trends suggest a strong case for optimism. With a natural upward bias and a high likelihood of recovery following sharp downturns, STZ presents an intriguing opportunity for bullish speculation. The stock is attractively priced at current valuations, further supporting the long-side narrative despite broader market uncertainties and geopolitical noise.
Given the statistical precedent for recovery, a capped-risk strategy like the bull call spread aligns well with STZ’s potential upside while protecting against unexpected downside risks. By carefully structuring the spread around key strike prices, investors can position themselves to benefit from a likely rebound without overexposing their portfolio to external volatility.
