Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Constellation Brands Inc (STZ) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Constellation Brands, Inc. is an international beverage alcohol company. The Company’s operating segments include Beer, Wine and Spirits and Corporate Operations and Other. The Company’s wine portfolio is complemented by select spirits brands and other select beverage alcohol products. It is a multi-category supplier (beer, wine and spirits) of beverage alcohol in the United States. The Company’s customers include wholesale distributors, retailers, on premise locations and government alcohol beverage control agencies. In the United States, the Company operates 19 wineries using varieties of grapes grown in the Napa, Sonoma, Monterey and San Joaquin regions of California. It also operates eight wineries in Canada, four wineries in New Zealand and five wineries in Italy. The Company’s Canadian whisky requirements are produced and aged at its Canadian distillery in Lethbridge, Alberta.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of STZ – January 2016
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $29,362,499,173 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 2.58 | Pass | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Fail | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Fail | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | -684.91% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 33.87 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 4.97 | Fail | |
| Score | ||||
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 2.58 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 3.77 | Fail | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $4.38 |
| MG Growth Estimate | 15.00% |
| MG Value | $168.71 |
| Opinion | Fairly Valued |
| MG Value based on 3% Growth | $63.54 |
| MG Value based on 0% Growth | $37.25 |
| Market Implied Growth Rate | 12.69% |
| Current Price | $148.44 |
| % of Intrinsic Value | 87.99% |
Constellation Brands Inc qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, the short dividend history, and the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned by the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.
As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.12 in 2012 to an estimated $4.38 for 2016.  This level of demonstrated earnings growth supports the market’s implied estimate of 12.69% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Constellation Brands Inc (STZ)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$31.90 |
| Graham Number | $43.09 |
| PEmg | 33.87 |
| Current Ratio | 2.58 |
| PB Ratio | 4.97 |
| Dividend Yield | 0.42% |
| Number of Consecutive Years of Dividend Growth | 1 |
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Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | Aug15 |
| Total Current Assets | $3,131,500,000 |
| Total Current Liabilities | $1,212,200,000 |
| Long-Term Debt | $7,238,200,000 |
| Total Assets | $15,673,400,000 |
| Intangible Assets | $9,605,500,000 |
| Total Liabilities | $9,610,600,000 |
| Shares Outstanding (Diluted Average) | 203,110,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | $2.67 |
| Feb15 | $4.17 |
| Feb14 | $9.83 |
| Feb13 | $2.04 |
| Feb12 | $2.13 |
| Feb11 | $2.62 |
| Feb10 | $0.45 |
| Feb09 | -$1.40 |
| Feb08 | -$2.83 |
| Feb07 | $1.38 |
| Feb06 | $1.36 |
| Feb05 | $1.19 |
| Feb04 | $1.03 |
| Feb03 | $1.10 |
| Feb02 | $0.78 |
| Feb01 | $0.65 |
| Feb00 | $0.53 |
| Feb99 | $0.34 |
| Feb98 | $0.31 |
| Feb97 | $0.30 |
| Feb96 | $0.02 |
Earnings Per Share – ModernGraham History
| Next Fiscal Year Estimate | $4.38 |
| Feb15 | $4.88 |
| Feb14 | $4.63 |
| Feb13 | $1.74 |
| Feb12 | $1.12 |
| Feb11 | $0.43 |
| Feb10 | -$0.51 |
| Feb09 | -$0.68 |
| Feb08 | -$0.08 |
| Feb07 | $1.27 |
| Feb06 | $1.17 |
| Feb05 | $1.04 |
| Feb04 | $0.91 |
| Feb03 | $0.79 |
| Feb02 | $0.60 |
| Feb01 | $0.48 |
| Feb00 | $0.37 |
Recommended Reading:
Other ModernGraham posts about the company
| 32 Companies in the Spotlight This Week – 12/6/14 | |
| Constellation Brands Inc. Annual Valuation – 2014 $STZ |
Other ModernGraham posts about related companies
Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
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