Constellation Brands Capitalizing on Interesting Trend

While the major players in the beer industry have performed quite well over the past year, one company in particular continues to stand out and impress Wall Street. New York based Constellation Brands (NYSE:STZ) shares hit an all time high after releasing excellent Q4 results this week. The company’s product mix has been performing very well and Constellation continues to make key acquisitions to continue to bolster its portfolio. Revenue came in at $1.5B a 14.1% increase Y/Y and EPS figures stood at 1.19 eclipsed analysts estimates of 1.14 per share.

Constellation has been on a roll with acquisitions, after acquiring Ballast Point Brewing Company and Meomi Wines in late 2015, companies that have been performing exceptionally well since getting scooped up by Constellation. It was just announced that Constellation has made another acquisition to its robust portfolio by adding Prisoner Wine Company.

Prisoner Wine is a luxury Napa Valley brand that holds the #1 wine in the Super Luxury Red Blend Category, where sales grew 28% in retail last year. STZ is also mulling over a potential IPO for the Canadian segment of the business. Constellation’s Mexican beer portfolio has really been performing well, particularly the flagship Corona Extra brand. Corona Extra is the #1 imported beer in the US and 5th largest beer brand after selling 117 million cases in 2015. Constellation’s massive $1.5B Nava facility in Mexicali is currently under construction to keep up with the demand that its Mexican brands are experiencing.

Ballast Point: A Bright Spot for Constellation

Leverage Equity Research first initiated coverage on Constellation Brands in November with our Article Ballast Point: From IPA to IPO. Ballast Point intended to make history in the craft beer industry, by being the first craft beer company to go public with its IPO for $173M. Instead, it was Constellation Brands who made history with the largest craft beer acquisition ever buying Ballast Point for $1B. STZ is up 16% since the acquisition.

Since the Addition of Ballast Point in Mid December when the deal was finalized, the company has added $27M in revenue for Constellation and these numbers continue to increase. Ballast Point has enormous potential to be one of the most influential beer companies in the nation over the long term. They continue to be one of most innovative brands out there in terms of products and marketing, while management has consistently led the craft beer industry forward. It is Constellation’s goal in 2016 to reach distribution in all 50 states for Ballast Point.

In calendar 2015, Ballast Point posted a depletion growth of more than 130% and sold almost 4 million cases. This level of growth is nearly three times that of any major competitor. There have been talks of opening a brewery on the East Coast for Ballast Point, this would be huge for the growth and presence of the company nationwide. Currently the company operates in 4 locations in San Diego and does a good portion of its business in California.

An Interesting Trend

The company is noticing an interesting and positive trend that is helping STZ perform as well as it has been in recent months. Ballast Point is the highest priced craft beer on the market, but also the fastest growing. A counterintuitive trend that really highlights how strong Constellation portfolio of brands really is. Meoimi wines also falls into this trend as one of the highest priced wines in its category that is also experiencing some of the highest growth. This is a great sign and signals the momentum that these products are experiencing.

“Clearly all the big growth in wine right now is in these higher price points like the Prisoner. You look at beer, it’s almost the same…it’s better beer and higher price points that are driving that market. It’s almost a little contradictory in the sense that it would be the highest price and have the highest growth, but that’s what makes it as attractive as it is.” said CEO Rob Sands.

From a financial perspective, Ballast Point is considered the strongest craft beer company in the country. Ballast Point continues to grow incredibly fast, while continuing to be an innovative leader within the industry. Ballast Point is constantly churning out new products that are resonating with consumers. The company grew over 100% in 2015. Analysts are starting to pay closer attention to the brand after seeing the results and the growth potential Ballast Point holds. We remain bullish on Constellation Brands’ future prospects.

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