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Constellation Brands (STZ) Fuels Growth at Wine & Spirits


Constellation Brands Inc. STZ has long been focused on expanding operations toward achieving business growth. The company’s consistent focus on brand building and its initiatives to include new products in its portfolio are the key revenue drivers for the stock. In line with this strategy, the company made a series of announcements, aimed at concentrating on areas with high-growth potential, alongside boosting shareholder value.

Notably, Constellation Brands is witnessing robust depletion trends and increasing market share in the U.S. wine and spirits category. This was demonstrated by double-digit depletion growth, at each of its recently acquired wine brands, in second-quarter fiscal 2017. Building on its wine portfolio, the company announced plans to buy Charles Smith Wines collection for roughly $120 million, which is expected to be concluded in October itself.

This deal will bring Charles Smith’s five premium wine brands, including Kung Fu Girl Riesling, Velvet Devil Merlot, Boom Boom! Syrah, Eve Chardonnay and Chateau Smith Cabernet Sauvignon in Constellation Brands’ kitty. These brands, which have displayed double-digit volume growth over the last three years, enjoy solid market demand and are likely to strengthen Constellation Brands’ existing position as the second leading supplier of Washington State wines.

Moving to Constellation Brands’ focus on solidifying its spirits portfolio, we note that this Zacks Rank #2 (Buy) company recently acquired a minor stake in the largest American new whiskey distillery – Bardstown Bourbon Company. This move represents the company’s efforts to enhance innovations in the brown spirits space. Also, it closed the previously announced buyout of Utah-based High West Distillery.

Boasting a robust portfolio of unique, award-winning premium American straight whiskeys and other spirits brands, High West has achieved double-digit volume growth for three straight years now. Its addition to Constellation Brands’ ambit is likely to be profitable for the company by helping it enter and expand in the superior craft whiskey space.

Apart from undertaking acquisitions, Constellation Brands also inked a deal to sell its Canadian wine operations to Ontario Teachers' Pension Plan, which is Canada’s largest single-profession pension plan. The sale will include Canadian wine brands like Jackson-Triggs and Inniskillin, vineyards, facilities, wineries, offices, along with Wine Rack retail stores.

Valued at nearly C$1.03 billion, the deal is anticipated to close by the end of this calendar year. Further, the company envisions receiving roughly C$750 million as cash proceeds, after accounting for debt repayment. The company also expects to record an after-tax gain for fiscal 2017, which will be excluded during the calculation of its comparable diluted earnings per share.

In connection with its focus on high margin brands, Constellation Brands first announced plans to assess the impact of an initial public offering for part of its Canadian wine space, in Apr 2016. However, the aforementioned deal reflects the company’s move of doing away with its entire Canadian wine business, in an attempt to enhance its value.

Clearly, Ontario Teachers' Pension Plan is likely to be a perfect growth opportunity for these Canadian wine brands, given the former’s robust experience. Nonetheless, Constellation Brands will retain the ownership of its Black Velvet Whisky and the associated production facility – located in Lethbridge, Alberta, Canada.



Stocks to Consider

Other well-ranked stocks worth considering in the alcohol-beverage space include Castle Brands Inc. ROX, Molson Coors Brewing Company TAP and Craft Brew Alliance, Inc. BREW, each with a Zacks Rank #2. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Castle Brands has seen positive estimate revisions for the current fiscal year over the past 90 days. The company is expected to report second-quarter fiscal 2017 results sometime in November.

Molson Coors has to its credit a long-term EPS growth rate of 6% and positive estimate revisions over the past 30 days.

Craft Brew Alliance, with a long-term EPS growth rate of 25%, has witnessed positive estimate revisions for 2016, over the past 60 days.

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