Constellation Brands: A Fallen Star or a Hidden Value Play?

Key Points

• Constellation Brands is one of the largest beer, wine and spirits producers in the world, with brands like Corona, Modelo, Pacifico, Kim Crawford, Robert Mondavi and Casa Noble.
• Its shares collapsed 37% on missed earnings to multi-year lows, possibly a buying opportunity.
• Constellation's beer business is thriving, but win and spirits revenues fell 14% YoY in its fiscal third quarter of 2025.

Alcohol is generally inelastic as prices rise; demand tends to remain the same. However, this doesn’t mean consumers can’t trade down or switch types of alcohol. Constellation Brands Inc. NYSE: STZ is one of the largest producers of beer, wine, and spirits in the world.

The consumer staples sector leader has many popular brands of alcoholic beverages in its portfolio, including top-selling Corona, Modelo, Pacifico beers, Robert Mondavi, Kim Crawford and Meloni wines, and High West and Casa Noble Tequila. 

It is the top beer importer in the United States, facing heavy competition from Molson Coors Beverage Co. NYSE: TAP. Its stock is trading near five-year lows as wine and spirits sales continue to decline while beer sales continue to grow.

Why Are Consumers Drinking Less Wine and Liquor?

The wine industry faced its largest recorded drop in volumes and values, according to Sovos ShipCompliant data. Their data indicates that 2024 saw a 10% year-over-year (YoY) drop to 6.4 million cases and a 5% YoY decline in value to $3.94 billion. Wine consumption in the United States has been steadily dropping since 2021. Cost and health concerns tend to be the main reason that younger people avoid drinking wine.

Even cannabis legalization has been cited as leading to a decline in wine sales, which explains why Constellation Brands blew $4 billion on its investment in Canopy Growth Co. NASDAQ: CGC in 2017 with plans to release a cannabis-infused beverage. However, Constellation scrapped its plans and chose to distance itself from the company in 2024, at least until cannabis gains federal legalization.

Constellation Brands reported fiscal Q3 2025 EPS of $3.25, missing consensus estimates of $3.31 by 6 cents. Revenues fell 0.3% YoY to $2.46 billion, also missing consensus estimates of $2.53 billion.

Beer Business Is Growing While Wine & Spirits Continue to Sink

Its Beer business saw net sales rise 3% YoY, driven by a 1.6% increase in shipment volumes. It was the #1 dollar share gainer, with six of the top 15 share-gaining brands. Modelo Especial maintained its #1 spot, while Corona Extra remained a top-five brand, and Pacifico ranked #4 in dollar share gains. Constellation expects Beer business net sales to grow 4%–7% and operating income to rise 9%–12% in fiscal 2025.

Its Wine & Spirits business saw net sales decline 14% YoY, driven by a 16.4% drop in shipment volumes. Weaker consumer demand and retail inventory destocking drove the shortfall. Constellation expects an organic net sales decline of 5% to 8% and operating income decline of 17% to 19% in fiscal 2025. However, the company raised its fiscal 2025 operating cash flow target to $2.9 billion to $3.1 billion and its free cash flow projection to $1.6 billion to $1.8 billion.

The Elephant in the Room: Impacts of Tariffs

Constellation Brands is particularly vulnerable to tariffs for Mexican imports since their top-selling beers include Modelo, Corona, and Pacifico. These beers are brewed in their factories in Mexico and imported back into the United States. Potential Trump tariffs on Mexican imports were also a factor that led to selling since 85% of their revenue is derived from Mexican imports. While there has been a 30-day reprieve, any levying of new tariffs is a threat to margins. It would truly test the inelasticness with its top-selling beers. Management didn't give many details in its mitigation plans as it is still “too early hypothesize…”

Attracting New Customers of Age

Constellation Brands CEO Bill Newlands commented, “We also continue to drive significant demand in our portfolio from new legal drinking age consumers and are pleased to have had a higher proportion of our dollar sales this year coming from 21- to 24-year-olds as they have made more trips to the store and spent more on each trip across our brands.”

Weekly Inverse Cap and Handle Pattern

A cup and handle pattern is comprised of two separate patterns: a cup and a handle. The cup is formed as a stock peaks a swing high, marking the lip line as shares fall to a swing low, form a rounding bottom, and rally back to retest the cup lip line. After the cup pattern is complete, the stock rejects again from the lip line to form a shallow pullback before turning back up again to retest the cup lip line, forming the handle. The cup and handle breakout occurs if the stock can break out above the cup lip line on the handle bounce and in the third attempt. The inverse cup and handle have the same formation but are in the opposite direction.

STZ formed a weekly inverse cup pattern as shares broke down through the weekly anchored VWAP support at $225.62, falling towards the $160.63 cup lip line. STZ should rebound off that support level to form a handle. Traders can play the bounce on the handle back up towards the $208.52 Fib. Fibonacci (Fib) pullback support levels are at $168.71, $160.63, $140.38, and $123.51.

STZ stock’s average consensus price target is 50.42% higher at $254.29, and its highest analyst price target sits at $306.00. It has 12 analysts' Buy ratings and nine Hold ratings. The stock has a 1.88% short interest.

Bullish investors can consider using cash-secured puts at the Fib pullback support levels to buy the dip. If assigned the shares, then writing covered calls at upside Fib levels executes a wheel strategy for income in addition to the 2.38% forward dividend yield.