Can Constellation Brands' buzz last?

The owner of the Mondavi and Corona brands has seen a tremendous run over the last 2 years.

By MSN Money Partner Jul 2, 2014 1:07PM
Corona Extra beers, sporting lime wedges, on the bar at Rick's Cafe in Chagrin Falls, Ohio (© Amy Sancetta/AP Photo)By Tomi Kilgore, MarketWatch

Constellation Brands' (STZ) latest results have sent the stock toward another all-time high, confirming what investors already knew: The booze business has been booming. 

But there are signs suggesting the current buzz may start to fade for Constellation investors fairly soon.

Shares of Constellation, which owns a host of brands including Robert Mondavi and Manischewitz wines, and Corona Light and Tsingtao beers, had already run up 26 percent this year through Tuesday, and have more than tripled over the last two years. The stock climbed as much as 7.2 percent to an all-time high of $94.77 before paring gains, following better-than-expected fiscal first-quarter results and an upbeat full-year outlook. 


Constellation has outperformed its peers by a wide margin. Anheuser-Busch InBev (BUD), Brown-Forman (BF.A) and Molson Coors Brewing (TAP) have all hit all-time highs in the last couple weeks, but their two -year gains -- 44 percent, 47 percent and 78 percent, respectively -- have been more along the lines of the broader market. The  Standard & Poor's 500 Index ($INX) has rallied 45 percent in two years, and closed at an all-time high on Tuesday.


But now, some of Constellation's shorter-term technical momentum indicators have reached overbought extremes seen just prior to previous pullbacks in April and January of this year. And on the longer-term charts, the same indicators have been trending lower this year while the stock has gained, suggesting momentum is fading.


Keep in mind that last quarter, the stock rallied as much as 4.8 percent intraday after better-than-expected results, before closing down 1 percent.


And while the company’s beer business is still very strong -- first-quarter sales were up 14 percent from last year -- wine and spirits sales, which represented nearly half of total sales last quarter, haven't been as rosy. They were down 1 percent because of "lower shipment volume" resulting from distributor inventory destocking.


In the previous two quarters, wines and spirits sales rose just 1 percent and 3 percent -- beer sales were up 13 percent and 21 percent -- as volume growth was offset by "higher promotional spend." Looks like that higher spend hasn't been working.


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4Comments
Jul 2, 2014 2:00PM
avatar
Give me a Founders or Ommegang brew.  I wouldn't waste my money on this stuff.    It's all image driven and no substance.  Ever notice the more advertising a product gets the crappier it tends to be?
Jul 2, 2014 2:43PM
avatar
Ugh, makes you wonder why a beer brand has to pump so much cash into advertising and image. Something worth trying: find your local craft brewer, head down there talk with the people the work there, get a sense for their passion in what they do, have a flight and find something they make you will enjoy. Turn off the noise and have yourself a good brew. 
Jul 2, 2014 2:50PM
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