In This Article:
Key Points
-
Constellation is struggling with shifting consumer trends and rising tariffs.
-
It’s restructuring its portfolio and cutting costs to stabilize its earnings.
-
Its stock looks cheap, but its upside potential might be limited.
Constellation Brands (NYSE: STZ) was once considered a reliable blue-chip stock. It owns more than 100 brands of beers, spirits, and wines, and it has raised its dividend annually for 10 consecutive years. But over the past 12 months, Constellation's stock price has dropped nearly 30%. Let's see why that happened -- and if it can bounce back over the next 12 months.
What happened to Constellation over the past year?
Constellation struggled with four main headwinds over the past year. First, younger millennials and Gen Zers are consuming less alcohol than previous generations. That trend is sparking concerns that alcohol could suffer the same fate as tobacco.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »
Second, Constellation is heavily exposed to the Trump administration's tariffs against Mexico, since its top brands include Modelo, Corona, Pacifico, Fresca Mixed, and Casa Noble Tequila. Canada's retaliatory tariffs against the U.S. could exacerbate that pressure. Piper Sandler analysts believe those tariffs could reduce its earnings per share (EPS) by $3 to $3.75 in fiscal 2026 (which ends in February 2026). That would equal 22% to 27% of its EPS of $13.78 in fiscal 2025.
Third, its wine sales, which once seemed better insulated from the shifting consumer trends than its beer and spirits, are also declining. Its wine sales fell 9% in fiscal 2024 and declined another 7% in fiscal 2025.
Lastly, Constellation's near-term outlook is grim. For fiscal 2026, it expects its organic sales to stay flat (between negative 2% and plus 1%), with its 0% to 3% growth in beer sales offsetting the double-digit declines across its wine and spirits segments as it divests its weaker wine brands. Assuming the tariffs against Mexico stay in effect, it expects its EPS to tumble 8% to 11%.
What will happen to Constellation over the next year?
To stabilize its business and boost its margins, Constellation plans to divest its cheaper wines (including Woodbridge, Meiomi, and Simi) and focus on expanding its premium wines (like Kim Crawford and Robert Mondavi Winery). It's also trying to capture younger drinkers with nonalcoholic drinks and lighter alcoholic beverages like Modelo's Aguas Frescas.