Constellation Brands Inc Valuation – August 2016 $STZ
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 Companies Benjamin Graham Would Invest In Today - July 2016. 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 is a producer and marketer of beer and wine the United States and Canada. Its segments include Beer, Wine and Spirits, and Corporate Operations and Other. It is a multi-category supplier (beer, wine and spirits) of beverage alcohol in the United States. It sells a number of brands in the import and craft beer categories, including Corona Extra, Corona Light, Modelo Especial, Ballast Point and others. It is a producer and marketer of wine, and sells a number of wine brands across various categories, including table wine, sparkling wine and dessert wine, and across all price points, such as popular, premium and luxury categories. Some of its wine and spirits brands sold in the United States include Black Velvet Canadian Whisky, SVEDKA Vodka, Meiomi, Robert Mondavi, Wild Horse, among others.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of STZ – August 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 | $33,026,009,483 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.19 | Fail | |
| 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 | -471.03% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 45.08 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 4.95 | Fail | |
| 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 | 1.19 | Fail | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 12.87 | Fail | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Fail | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $3.66 |
| MG Growth Estimate | 15.00% |
| MG Value | $140.99 |
| Opinion | Overvalued |
| MG Grade | F |
| MG Value based on 3% Growth | $53.10 |
| MG Value based on 0% Growth | $31.13 |
| Market Implied Growth Rate | 18.29% |
| Current Price | $165.07 |
| % of Intrinsic Value | 117.08% |
Constellation Brands, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.74 in 2013 to an estimated $3.66 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 18.29% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Constellation Brands, Inc. revealed the company was trading above its Graham Number of $0. The company pays a dividend of $1.33 per share, for a yield of 0.8% Its PEmg (price over earnings per share – ModernGraham) was 45.08, which was above the industry average of 32.42. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-36.83.
Constellation Brands, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of F.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$36.83 |
| Graham Number | $0.00 |
| PEmg | 45.08 |
| Current Ratio | 1.19 |
| PB Ratio | 4.95 |
| Current Dividend | $1.33 |
| Dividend Yield | 0.81% |
| Number of Consecutive Years of Dividend Growth | 2 |
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| ModernGraham tagged articles | Morningstar |
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Most Recent Balance Sheet Figures
| Balance Sheet Information | 5/1/2016 |
| Total Current Assets | $3,218,500,000 |
| Total Current Liabilities | $2,698,700,000 |
| Long-Term Debt | $6,690,600,000 |
| Total Assets | $17,630,000,000 |
| Intangible Assets | $10,790,600,000 |
| Total Liabilities | $10,782,000,000 |
| Shares Outstanding (Diluted Average) | 205,367,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | |
| Feb2016 | $5.18 |
| Feb2015 | $4.17 |
| Feb2014 | $9.83 |
| Feb2013 | $2.04 |
| Feb2012 | $2.13 |
| Feb2011 | $2.62 |
| Feb2010 | $0.45 |
| Feb2009 | -$1.40 |
| Feb2008 | -$2.83 |
| Feb2007 | $1.38 |
| Feb2006 | $1.36 |
| Feb2005 | $1.19 |
| Feb2004 | $1.03 |
| Feb2003 | $1.10 |
| Feb2002 | $0.78 |
| Feb2001 | $0.65 |
| Feb2000 | $0.53 |
| Feb1999 | $0.34 |
| Feb1998 | $0.31 |
| Feb1997 | $0.30 |
Earnings Per Share – ModernGraham History
| Next Fiscal Year Estimate | $3.66 |
| Feb2016 | $5.22 |
| Feb2015 | $4.88 |
| Feb2014 | $4.63 |
| Feb2013 | $1.74 |
| Feb2012 | $1.12 |
| Feb2011 | $0.43 |
| Feb2010 | -$0.51 |
| Feb2009 | -$0.68 |
| Feb2008 | -$0.08 |
| Feb2007 | $1.27 |
| Feb2006 | $1.17 |
| Feb2005 | $1.04 |
| Feb2004 | $0.91 |
| Feb2003 | $0.79 |
| Feb2002 | $0.60 |
| Feb2001 | $0.48 |
Recommended Reading:
Other ModernGraham posts about the company
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.
