Constellation Brands Worth Another Shot: Analyst

Higher expenses may have clouded Constellation Brands’s2013 forecast, but Timothy Ramey, vice president and senior research analyst at D.A. Davidson and Co., says there's plenty of fizz left in the company's balance sheet.


The maker of Robert Mondavi and Ravenswood announced early Thursday it expects earnings per share, excluding items, of $1.93 to $2.03 for fiscal year 2013, sending its shares down nearly 14 percent to $21.41 and making it the worst performer in the Standard & Poor's 500 in afternoon trading. Analysts polled by Thomson Reuters expected $2.23 per share, on average.

“Apples to apples it looks bad, but when you really look at it [you realize] it’s not because of poor sales outlook or poor margin outlook, it’s because they’re planning on terming out debt and paying a much higher interest expense in 2013,” Ramey told CNBC, after the company's earnings call.

Ramey, who rates Constellation Brands a buy with a $30 price target, said he's optimistic about the guidance being affected by higher expenses and not by lagging sales.

“The key thing [to remember] for Constellation is that this is not about their EBIT growth rate, this is not about their topline, this is about below-the-line items, and that makes us feel much more comfortable,” the analyst said.

For the period ended Feb. 29, Constellation posted fourth-quarter sales of $628 million, down 12 percent but still better than analysts’ estimates of $626 million. Earnings, excluding items, was up 85 percent to $138 million, helped by a favorable tax rate.

Although Constellation recently sold off its Australian and British wine business, Ramey said he feels “quite good” about the outlook for Constellation in both the wine — the company has said it expects to mirror this year's performance in the same category next year — and imported beer segments, where they are "outperforming."

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Neither Timothy Ramsey nor his firm owns stock in Constellation Brands.