Betting Against Constellation Brands Inc. is Not a Good Idea
With significantly better-than-expected results on its second fiscal quarter, Constellation Brands Inc. (NYSE:STZ) is a company to watch. Owners of Constellation Brands stock were pleased by the wine and beer company’s ambitious growth plans and higher annual earnings per share.
The Victor, NY-based company is noted for having acquired some of the world’s top wine brands; including Robert Mondavi Winery, Ruffino, and Inniskillin. They recently announced impressive 2016 second-quarter fiscal results.
Constellation Brands Stockholders Toasting Great Returns
Constellation Brands saw $1.56 per share adjusted earnings of $1.49 and revenues of $1.73 billion, which is eight percent higher than the same quarter a year ago. More significantly, Constellation Brands stockholders toasted 21% higher operating profits of $501 million compared with net income growing 43% to $318 million and 54% to $302.0 million in consolidated data. The EPS analyst consensus was for $1.32 on $1.73 billion in revenue. Annual EPS is expected between $5.00 and $5.20. (Source: “Constellation Brands Quarter Beats Estimates,” WXXI News, Oct.7, 2015.)
Chart courtesy of www.StockCharts.com
Despite the appealing profit margins, owners of Constellation Brands stocks do not often see news about the sector. Share ownership in the wine industry has been hidden away in an information cellar, but 2015 is looking like a good vintage and 2016 could be even better for the sector. Even if you don’t need to spend a small fortune to enjoy a glass or two, wine can be categorized as a luxury item. Makers of such products often give investors good or better returns than more traditional stock market picks.
Such was the motivation and appeal of Ferrari’s IPO, whose shares fetched up to $62.00 on launch, which was well above the expected $48.00 to $50.00 range. The precursor to investing in Ferrari stock was investing in classic Ferraris, cars made in the 1950s to 1980s that were valued thousands of times higher than their price when new. Such is the case with violins and wine.
Wine and spirits gain up to 20 times more than other vehicles, because like many luxury goods, wine is crisis proof. There is always going to be a market for wine and spirits. Bad periods stimulate the need for relief and good periods prompt celebration. A good glass of red or a fine Prosecco enhances both experiences.
Premium wines are now made in many parts of the world. Basic geography allows you to predict where the best vineyards are located. Typically, these are around the 42nd parallel in the Northern Hemisphere. Middle Europe and northern United States produce excellent white and red wines like Bordeaux. Vice versa, the 42 parallel south corresponds to South Africa, Australia and New Zealand, which have been recognized for making some of the best wines in the world.
Wine is Good for Health and Wine Stocks Are Good for Portfolios
Despite the many great wine traditions worldwide, the stock markets have paid little tribute to this most ancient of food and drink items. The launch of Constellation Brands stock has shown that the market is changing. In 2015, an Italian company, IWB, combined two large private wine producers into one and listed on the Milan stock exchange. (Source: “IWB to bring Italian wine to Milan bourse,” Reuters, Jan. 22, 2015.)
Indeed, given that the theme at the 2015 World Expo is food, this is the year to be considering investing in wine and even more so in wine stocks. Italian wine continues to grind big numbers for example and the industry has performed impressively despite a series of recessions and economic crises.
The wine sector in the stock market alone grew 225.7%. That’s well above other sectors, averaging a more modest increase of 61.8% in Italy. North America saw even better gains with a performance of wine stocks growing 349.9%. In wine-loving France, the growth was good but not as spectacular at 103.4%. Drink up and toast to good health with the promise of better returns than most thanks to your favorite beverage.
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