Constellation Brands vs. Molson Coors: Here's which beer maker is the clear winner to buy

Published Wed, May 31 20236:00 AM EDT

In a battle of beer makers, Molson Coors (TAP) has had the advantage lately over rival Constellation Brands (STZ). But the maker of Corona and Modelo is our pick to win the bigger war. Here's the tale of the tape. Molson Coors has a diverse portfolio of popular beer brands including Coors Light and Miller Lite as well as other summer favorites Blue Moon and Leinenkugel's. Shares of TAP have gained about 17% in 2023, driven by strong beer growth and strategic partnerships. Backlash over Bud Light's market campaign with a transgender influencer had led to boycotts and increased sales at competitors like TAP and STZ. Bud Light is made by Anheuser-Busch Inbev (BUD), whose stock has really fallen off a cliff since early May. TAP STZ YTD mountain Molson Coors vs. Constellation Brands YTD performance At Club holding Constellation, its core beer brands are Corona, Modelo and Pacifico. But in addition to those Mexican favorites, it also has a wide selection of wine and spirits under its umbrella. STZ shares have gained just over 2% in 2023 compared to the S & P 500 's year-to-date rise of 9.5%. The stock has been hampered by volatility in beer volume trends, resistance to increased retailer pricing, and poor weather in key markets over the past few quarters. With Bud Light out of favor with a large portion of its customer base, many beer drinkers are instead buying more Miller Lite and Coors Light from TAP and more Corona and Modelo from STZ. "I think that Constellation is gaining share at a time when people thought that Corona Light had been running out of steam," Jim Cramer said recently. While Mexican imports also had a tough start to the year, recent beer data from Nielsen shows Constellation's beers saw 9.6% sales growth over the last four weeks and TAP grew 15.9%. Sales of BUD's beer brands fell 12% over the same period. Roth MKM analysts agreed with Jim and put some context around the rosier STZ backdrop. In a research note Tuesday, they pointed to expected market share gains for Constellation's Modelo Especial and Corona as the weather around the nation improves and the Bud Light situation plays out. "The opportunity to capture brand switching is massive in the summer months," the analysts said. "For April, much of Bud Light share losses went to other premium light products, but substitution should shift seasonally into STZ's favor," they added. Roth MKM upgraded STZ to a buy rating from neutral while increasing its price target to $270 per share from $216. That new PT is nearly 16% higher than Friday's close. After breaking down the profitability profile and growth plans of each company, we found Constellation Brands is much better positioned for the long term compared to Molson Coors and other top beer players in the industry. That, coupled with a recent mini-pullback in the stock led us to add 20 more shares of STZ last Thursday. STZ saw a small bump Friday and then rose 1.8% on Tuesday after the long Memorial Day weekend to close at $237. STZ hit its all-time high of $261.53 in April 2022. TAP hit its all-time high of $112.19 in October 2016. Molson Coors Molson's beers include domestic premiums, which have long been on the slide, along with some exposure to the saturated craft beer category. Molson is North America's oldest beer company and second largest brewer by volume, which represented about 20% of the total beer market in North America in 2022. More recently the company has grown its presence in high-end seltzers and flavored malt beverages. Molson has done a good job in diversifying "away from their core of premium lights," Gerald Pascarelli, analyst at Wedbush, told CNBC. The company's partnership with Coca-Cola (KO) has led to the successful launch of Simply Spiked, a brand of alcoholic drinks inspired by Simply's popular juices and Topo Chico Hard Seltzer. This expansion was a part of Molson's revitalization plan to bring new and innovative products to the market. But it accounts for only a small size of the overall company. Pascarelli said that Simply Spiked "isn't contributing a substantial amount to the growth trajectory of the company's top-line growth. STZ TAP ALL mountain Constellation Brands vs. Molson Coors long term performance It's Molson's flagship brands Miller Lite and Coors Light that account for most of its revenue — a tough spot as domestic beers are not as much of a draw as they used to be. While both STZ and TAP shares soared from the 1980s, they each stumbled around 2017. However, a long-term comparison chart shows Constellation recovering much quicker with more recent momentum. Additionally, Pascarelli said TAP's runway to gain market share is weak compared to STZ. "Molson Coors is at a more mature stage than Constellation Brands given the historical growth rates that imports have had relative to premium or premium light beers." Constellation Brands Constellation's beer business is much better positioned than its peers because it's "playing to changing consumer trends towards premiumization of the beer industry," Citi analyst Filippo Falorni told CNBC in an interview with CNBC. He also highlighted the "significant market share shift" within the beer industry away from core domestic beers like Bud Light, Coors Light and Miller Lite, and into the high-end beer category, where Constellation dominates. Falorni cited favorable trends that will "create long-term tailwinds" for Constellation's beers including, a fast-growing Hispanic population — a demographic that accounts for a huge amount of STZ's Mexican beer business and younger consumers entering the legal drinking age. These factors "should drive much stronger top-line growth in Constellation's beer business in the medium term compared to peers," he added. Constellation's 7% to 9% net sales growth guidance for its beer business in fiscal 2024 "is sustainable over the next three to five years where it can continue to outpace the beer industry," Filippo explained. "Over the last five years, Constellation has been a clear outperformer growing in the 9% to 10% range in the beer category versus Molson Coors [which] has been declining in the low-single-digit range," he said. Going forward, Falorni expects Constellation to continue to grow at a faster rate relative to Molson Coors. STZ in early April delivered fiscal fourth-quarter misses on the top and bottom lines. However, it issued strong forward guidance for its current fiscal first quarter, which we saw a month later in strong sales on Cinco de Mayo. Constellation, which is expected to report fiscal Q1 numbers in late June, is still very much in the midst of cutting ties with some missteps of the past and charting a new path forward. Back in 2015, Constellation bought San Diego-based craft beer brewing company Ballast Point for $1 billion. It was an effort by Constellation to move into the craft beer market during a time when there was a lot of excitement in the category. But after it made the purchase "the category rolled over," said Wedbush's Pascarelli. Constellation's timing was "very poor because they bought at the absolute height of the craft beer boom," he explained. To add to the damage, Ballast Point management didn't have experience running a scaled business, he added, and Constellation was looking to go national with craft beer. A short five years later, Constellation sold Ballast Point in March 2020 for roughly $41 million, according to securities filings. Following the Ballast Point transaction, Constellation made another bold move by investing in Canadian cannabis company, Canopy Growth (CGC). The investment "probably wasn't the best use of their capital," said Edward Lewis, analyst at Atlantic Equities. In 2017, Constellation took a nearly 10% stake in Canopy Growth for roughly $190 million. A year later, it invested a further $4 billion in Canopy , increasing its stake at the time to 38%. STZ ultimately proved to be an unprofitable investment, resulting in losses and write-downs. Since then, Canopy has ended up being what Pascarelli called a "drag" on the company's earnings. "Constellation took a shot on a company that had very strong growth prospects in the legalization of Canadian cannabis and ultimately it just hasn't worked out," he said. Constellation made the Ballast Point and Canopy Growth moves at the top in each category, leading investors to question their capital allocation strategy. For the past several years, the company has been trying to turn that around. During both transactions, the founding Sands family controlled a majority of the voting rights at the company through a dual-class stock structure, and they had one of their own, Robert Sands, as CEO. Bill Newlands succeeded Sands as CEO in 2019. In late 2022 , firmly under Newlands' leadership, Constellation got rid of its dual-class structure, eliminating the Class B shares, which offered 10 votes per one share. They were largely held by the Sands family, who got cash payment amounts of roughly $1.5 billion in exchange. Constellation now only trades as Class A shares. Bottom line Constellation's historically strong beer business growth has temporarily been tempered due to some transitory pressures. We think those factors will steadily improve. While Molson Coors is catching much of the Bud Light exodus, Constellation's popular beer brands will also be a beneficiary. As its sales go up, STZ stock should follow suit. With the troubled deals left in the past, we believe management is now more focused on a path of sustainable growth. On top of its rosy beer growth profile, Constellation has an "enviable margin profile" said Atlantic Equities' Lewis. STZ has historically boasted a 39% to 40% operating margin, levels way above Molson Coors' 13% and Anheuser-Busch's 25%. During its fiscal fourth quarter, Constellation's operating margin in beer fell 170 points to 38.3% but only slightly below its historical range. Benefits from favorable pricing in fiscal Q4 were unfortunately more than offset by increases in the cost of goods sold and marketing expenses. But, analysts expect these temporary headwinds to pass as inflationary pressures ease. We remain confident in Constellation's long-term growth trajectory in its already dominant position in the beer category and industry-leading operating margin profile. Even in a tough economic climate, the company is well-positioned to maintain or grow beer share on one of a kind Mexican beer portfolio. (Jim Cramer's Charitable Trust is long STZ. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . 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Corona beer, owned by Constellation Brands.

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In a battle of beer makers, Molson Coors (TAP) has had the advantage lately over rival Constellation Brands (STZ). But the maker of Corona and Modelo is our pick to win the bigger war.