Constellation Brands Inc Class A (STZ)

Conclusion

Constellation Brands produces, imports, markets and sells beer, wine and spirits, with Corona and Modelo among its beer brands, mainly in the United States, Canada and Mexico. At a price of 145.51 USD on 2026-11-09, the market capitalisation is 24.62 billion USD.

The verdict is undervalued. The current P/E of 12.8x compares with a historical median of 21.3x, and the current EV/EBITDA of 10.7x with a historical median of 18.8x. The fair value band runs from 172.09 to 258.14 USD with a midpoint of 215.12 USD, a margin of safety of 47.8% at the current price. The DCF gives 169.14 USD per share, and the fair value from historical multiples is 261.10 USD. The price implies revenue growth of 0.35% a year (reverse DCF), against revenue growth of 1.19% a year over five years and free cash flow per share growth of 0.55% a year over the same period.

The strongest numbers are free cash flow conversion of 95.6% (trailing twelve months), ROIC of 9.9% against a WACC of 7.2%, and a Piotroski score of 7 out of 9. The weakest are a current ratio of 1.00, net debt to EBITDA of 3.1x, and a 90-day change of -2.4% in the next-year EPS estimate. Five-year EPS growth is -1.3% a year.

Financial health

The financial strength is yellow: interest coverage of 8.4x is good, but net debt to EBITDA of 3.1x, a current ratio of 1.00 and a quick ratio of 0.26 are only neutral. Debt to equity stands at 1.2x. The Altman Z-score is 2.88, in the grey zone; the Altman model was designed for manufacturers, and this company is a beverage producer, so the reading is only indicative. Insolvency risk: low, about 0.4% by the estimate of the Ohlson model over one to two years. The company's ability to cover interest is solid, but its liquidity is thin, so the balance sheet depends on continued operating cash flow.

Earnings quality

The earnings quality is green. Free cash flow conversion is 95.6% on a trailing basis and 268.3% over five years, and the accrual ratio of -4.5% shows that reported earnings are backed by cash. Stock-based compensation is only 0.4% of revenue, leaving 1.80 billion USD of free cash flow after it. The share count fell by 2.1% a year over five years, which points to buybacks. The Piotroski score is 7 out of 9, and the Beneish M-score of -2.68 is consistent with an unlikely risk of manipulation. The company beat earnings expectations in 6 of the last 8 quarters, with an average surprise of 7.0%. Estimate revisions are weak, however: 19 of the next-year EPS estimates were lowered in the last 30 days, against 2 raised.

Profitability

The profitability is green. The gross margin of 52.7% is above its historical median of 50.9%, while the operating margin of 30.9% is slightly below its median of 32.2%. The net margin of 20.9% compares with a median of 17.9%. ROIC of 9.9% against a WACC of 7.2% gives a ROIC minus WACC value of 2.7%, so the company creates value. Its five-year median ROIC is only 2.4%, so the current level is a recent improvement. The DuPont split shows that return on equity of 22.4% is partly driven by leverage: an equity multiplier of 2.71, an asset turnover of 0.42 and a net margin of 18.5%.

Growth

The growth is yellow. Revenue compounded at -1.1% a year over three years, 1.2% over five years and 3.4% over ten years. EPS fell by 1.3% a year over five years, although it grew by 6.4% a year over ten years. Free cash flow per share grew by 4.6% a year over three years, 0.6% over five years and 14.8% over ten years. Revenue grew in 9 of the last 10 years. Growth has slowed sharply in recent years, so the ten-year record is more flattering than the current trend.

Valuation

The valuation is green. Today's multiples sit well below their historical medians: P/E of 12.8x against 21.3x (a premium of -40.0%), EV/EBITDA of 10.7x against 18.8x (-43.0%), P/FCF of 13.4x against 27.1x (-50.6%), P/S of 2.67x against 4.80x (-44.3%) and P/B of 2.87x against 4.53x (-36.7%). The DCF uses a discount rate of 8.9% and gives 169.14 USD per share, with 54.5% of its value in the terminal value. The fair value is an order of magnitude built on fixed assumptions, not a price target. The reverse DCF implies growth of 0.35% a year, against revenue growth of 1.19% a year over five years. The dividend yield is 2.9% and the payout on free cash flow is 38.5%.

Risks

A current ratio of 1.00 and a quick ratio of 0.26 leave little room for a shock to working capital. Net debt to EBITDA of 3.1x means that a fall in EBITDA would raise leverage quickly. A negative five-year EPS growth rate and downward estimate revisions for next year suggest that the earnings base may keep shrinking, which would weaken the case for the current multiples. The Altman Z-score is in the grey zone. The company does not report its interest expense in the figures used here, so the interest coverage figure cannot be checked against it. The analysis has no debt maturity schedule and no revenue by segment, so refinancing risk and the dependence of each brand family cannot be assessed.