Corona beer maker's new plan to reduce costs makes stock even more attractive

Published Tue, Nov 7 20233:26 PM EST

Constellation Brands ' (STZ) push to reduce costs gives us increased confidence that the Corona and Modelo beer maker can deliver strong future growth and create additional value for shareholders. The part about maximizing cost savings was a major takeaway in Monday's research note from Barclays, which summarized last week's Constellation Investor Day. The analysts called attention to management's comments about the "next phase" of their transformation from a builder of more beer capacity by increasing square footage to an operator that utilizes its existing footprint in the most efficient way possible. Management said that by optimizing its beer expansion efforts, the company was able to reduce $1 billion in expenses. These cost savings enable meaningful improvement in Constellation's return on invested capital profile, according to Barclays, which allows the company greater stock buyback flexibility to create even more value for shareholders. The analysts also raised their price target on the stock to $293 per share from $280 and kept their buy-equivalent rating. Jim Cramer was encouraged by the Barclays note, saying on Tuesday that Constellation is "doing a lot of things right," citing its solid beer business that offers GARP, "growth at a reasonable price." STZ YTD mountain STZ performance year-to-date. We also covered Constellation's Investor Day last week, when the company played up its strong Mexican beer portfolio and tried to reassure investors that its struggling Wine & Spirits unit is on a better trajectory. Our Friday story highlighted the company's decision to reiterate medium-term growth expectations for beer and target low double-digit earnings-per-share growth, excluding losses from its stake in cannabis firm Canopy Growth (CGC). We were also encouraged by Constellation's disciplined capital allocation plans. However, we were disappointed the company didn't announce plans to offload Wine & Spirits, something we would have expected activist investor Elliot Management to advocate. Our views Friday and Barclays analysis Monday certainly reflect the thinking behind the Club's decision on Oct. 25 to add more shares of Constellation around $236 each. We bought back some of the 100 shares we trimmed when they were 9% higher back in July. Since last month's trade, shares of Constellation were up roughly 3%. (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 . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Constellation Brands' Corona Light is displayed for sale at a grocery store in New York.

Scott Eells | Bloomberg| Getty Images

Constellation Brands' (STZ) push to reduce costs gives us increased confidence that the Corona and Modelo beer maker can deliver strong future growth and create additional value for shareholders.