Investors should "return to beer fundamentals" with Corona- and Modelo-parent Constellation Brands as the hard seltzer craze wanes, according to Credit Suisse. "We make Constellation our Top Pick into year-end based on healthy depletions, minimal seltzer exposure, and margin upside. We expect improving supply and steady on premise performance," Credit Suisse's Kaumil Gajrawala said in a note Thursday. Credit Suisse has an outperform rating on Constellation and a price target of $275 on the stock, implying 29.9% upside from Wednesday's close. Seltzer sales growth has been negative since late summer for the alcoholic beverage industry and for Corona Seltzer, according to Nielsen data. However, Constellation's Corona Seltzer line makes up only 2.1% of sales and "is not critical to driving topline," Credit Suisse said. Constellation's beer profit margins remain in "best-in-class range and could expand further," according to the firm. Recent comments from Constellation's CFO suggest margins could be better than expected due to "delayed depreciation charges, incremental pricing, positive mix accretion from seltzer moderation, and cost headwinds which did not materialize," Credit Suisse said. Credit Suisse also foresees strength in another key part of the Constellation portfolio. "Mexican beer portfolio is the crown jewel of operations, but a healthier wine business is around the corner," Gajrawala said. Shares of Constellation are down 3% in 2021. —CNBC's Michael Bloom contributed reporting.
Corona beer, owned by Constellation Brands.
Investors should "return to beer fundamentals" with Corona- and Modelo-parent Constellation Brands as the hard seltzer craze wanes, according to Credit Suisse.