Should You Buy the Dip in This 'Strong Buy' Dividend Stock?

Food, Bev & Cannabis - jake-bradley-LnBisJEyVFE-unsplash

In the currently challenging landscape for consumer staples, the beverage industry is expanding due to a growing youth demographic, expanding middle-class wealth, and a strong economy. Zooming in, projections suggest the global alcoholic beverages market could soar to $2 trillion by 2031, fueled by rising disposable incomes among young adults and an expanding network of wineries and breweries worldwide. 

Within this niche, Constellation Brands, Inc. (STZ) is the company behind many familiar brands of beers, wines, and spirits. Following its recent Q1 revenue miss, the stock sold off - but STZ still has Wall Street analysts on its side, with a “Strong Buy” consensus rating and a mean target price suggesting a double-digit upside potential.

With this in mind, is the post-earnings pullback a perfect time for investors to buy this dividend-paying stock? Let’s find out.

About Constellation Brands Stock

New York-headquartered Constellation Brands, Inc. (STZ), with a presence in more than 100 countries, is a powerhouse in the beverage world, boasting a $46.1 billion market cap. 

Famous for its premium beer brands like Corona and Modelo Especial, the company leads the U.S. beer import market. Constellation also boasts a diverse portfolio of seltzers, wines, and spirits, including Kim Crawford wine and Casa Noble tequila. Notably, Constellation also invested $4 billion in Canopy Growth (CGC), marking a strategic entry into the cannabis industry.

STZ stock has climbed less than 5% on a YTD basis, lagging the broader market. July in particular kicked off on a sour note, when the beverage titan’s shares fell 3.3% with the release of its fiscal Q1 earnings release on Wednesday, July 3. STZ is still down about 2.2% since that report.

STZ is currently priced at 18.96 times forward earnings and 4.34 times sales, a discount to its historical averages of 21.41x and 4.75x, respectively.

Constellation Brands Falls Short on Q1 Revenue

On July 3, Constellation Brands reported mixed fiscal Q1 2025 earnings results. Net sales rose 5.8% year over year to $2.7 billion, but slightly missed consensus projections - which sent the stock reeling. However, non-GAAP EPS of $3.57 jumped 17.4% annually, topping estimates by 3.2%. This boost came from high demand for its flagship beer brands, making up for the slow performance in wines and spirits.

Constellation Brands’ Modelo Especial saw depletions rising by nearly 11%, solidifying its position as the leading share gainer in U.S. tracked channels. It also achieved significant household penetration, climbing to the No. 3 spot in May with a 2.4 percentage point increase over 52 weeks. 

Corona Extra remains a top-five U.S. beer brand, while Pacifico showed outstanding depletion growth of over 20%, ranking as the No. 4 dollar share gainer in the total beer category.

The company’s beer business achieved strong, high single-digit net sales growth of 8% and 16% operating income growth, which were primarily driven by continued shipment volume growth of 7.6% in Q1 and cost savings initiatives. The beer business’s net sales growth is projected to be between 7% and 9% in fiscal 2025, with its operating income growth anticipated to range between 10% and 12%.

Moreover, management projects non-GAAP EPS to range between $13.50 and $13.80, representing a 10% increase year over year at the midpoint. Analysts tracking Constellation Brands expect the company’s profit to reach $13.70 per share in fiscal 2025, up 13.6% year over year, and grow another 10.3% to $15.11 per share in fiscal 2026.

Of note, Constellation's free cash flow (FCF) tumbled 19% to $315 million during Q1, mainly due to rising capex in its greenfield brewery in Veracruz. Despite this, it still accounted for 11.8% of its sales. As management forecasts fiscal 2025 FCF between $1.4 billion and $1.5 billion – about 13.7% of analysts’ $10.6 billion sales estimate for the year – Constellation Brands showcases strong cash generation. This financial muscle powers share buybacks and dividends, making it a magnet for value-focused investors.

Constellation’s Dividend History

Since 2015, Constellation Brands has consistently rewarded shareholders with dividends, increasing payouts annually for eight consecutive years. Most recently, the company declared a $1.01 per share quarterly dividend, payable to its shareholders on August 23. 

That annualized payout of $4.04 per share translates to a 1.60% yield. The company’s conservative 28.8% payout ratio makes it a solid choice for income-seeking investors valuing reliability.

Constellation Brands distributed $185.3 million in dividends, and repurchased $200 million in shares during fiscal Q1. Additionally, the company completed over $40 million more in buybacks in June, highlighting its robust financial position and commitment to shareholder value.

What Do Analysts Expect for Constellation Brands Stock?

Following the mixed Q1 earnings, Wall Street analysts expressed strong support for STZ. Goldman Sachs (GS) analyst Bonnie Herzog praised the company's robust underlying business and conservative guidance, and reiterated a “Buy” rating with a $300 price target - signaling about 19% potential upside.

Elsewhere, JPMorgan’s (JPM) Andrea Teixeira maintained her “Overweight” rating for STZ stock and lifted the target price to $320 from $291, while Jefferies analyst Kaumil Gajrawala maintained a “Buy” rating while boosting the stock’s price target to $311.

Overall, Constellation Brands stock has a consensus “Strong Buy” rating. Out of the 20 analysts covering the stock, 17 recommend a “Strong Buy,” one advises a “Moderate Buy,” and the remaining two analysts are playing it safe with a “Hold” rating.

The mean price target of $299.35 suggests an upside potential of 18.3% from current price levels. The Street-high target price of $325 for Constellation Brands implies the stock could rally as much as 28.4%.

On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.