Here's what to expect when Modelo and Corona beer maker Constellation Brands reports earnings Friday

Published Thu, Jan 4 20244:01 PM EST

Everybody likes a comeback story. Constellation Brands ' stock has stalled, leaving long-time shareholders like us frustrated. However, the Mexican beer powerhouse has an opportunity to redeem itself with Friday's quarterly earnings print. Constellation is set to report its fiscal 2024 third quarter before the opening bell. Analysts expect revenue to grow 2.5% to $2.5 billion and earnings-per-share to increase 6% to $3, according to estimates from data provider LSEG, formerly Refinitiv. The global beer, wine, and spirits manufacturer — whose brands include Modelo and Corona beer, Kim Crawford wine, and Svedka vodka — has historically enjoyed continued market share gains largely driven by the popularity of Modelo, which is the largest beer brand in America. We've been a proponent of Constellation for a long time, calling it one of our strongest consumer-facing names in the Consumer Staples category. But we've been disappointed by the performance of the stock. It seems that shares don't want to budge even when there's good news. STZ 1Y mountain STZ 1-year stock performance. Constellation has been struggling to break out. The stock has been moving sideways since early October following the company's fiscal 2024 second-quarter earnings release. In fact, it was up just over 4% in last year's strong market rally. In its earnings preview, Wedbush thinks Constellation will deliver "what will most likely be the lowest performance quarter of the year (the three months ended Nov. 30" on lower revenue growth and a conservative outlook on beer operating margin. Wedbush analyst Gerald Pascarelli said in an interview with CNBC there is some industry concern over slight volatility in the beer category. Growth in the beer category "has been relatively elusive compared to the low-single-digit growth this category does historically," Pascarelli said. There's some "apprehension" over measured channel data, he added. It's historically been a solid barometer of what Constellation is going to report on beer depletions, which are orders by wholesalers to meet retail demand. The gap between what Constellation shows in databases that measure beer volumes, such as Circana and Neilson, has been widening relative to what the company reports. This has created a narrative where depletions may not look as good as the headline numbers that Constellation delivers in the quarter. This widening of numbers in channel shifts could be what's causing the "near-term hang-up" for the stock, Pascarelli said. But Wedbush believes that "easier comps are on the horizon," and beer trends will improve at the beginning of fiscal year 2025. "We like the setup from here, as beer trends will likely re-accelerate exiting fiscal year 2024." The analysts have a $300 price target and buy-equivalent outperform rating on the stock. Elsewhere, management has a strong outlook on its Wine & Spirits unit and said they expect to see profits improve. We've been calling for the company to divest anything that's not beer, which is the real money maker. But Constellation has transformed its Wine & Spirits portfolio into higher-end offerings, selling off lower-priced brands in hopes of improving profitability. We also like how activist firm Elliott Management continues to work closely with Constellation to help the company create long-term shareholder value. Jim believes Constellation's partnership with Elliott is what makes the stock worth holding. "If they weren't there, I'd think it would be time to move on," Jim said. The company has an information-sharing agreement with the activist firm, which can help management make more disciplined decisions around capital allocation and other actions that align with shareholder interest. Another incentive that keeps us invested is Constellation's focus on returning cash to shareholders. The company announced an additional $2 billion share repurchase authorization at its Investor Day in November. Over the past few years, the company has returned almost $6 billion in dividends and share repurchases to shareholders, while making investments to support the growth in its beer business. (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.

Corona beer, owned by Constellation Brands.

Getty Images