Modelo beer maker set to deliver a strong Q3, as the Club holding dominates the high-end market

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Wall Street expects alcoholic beverage producer Constellation Brands (STZ) to deliver solid quarterly earnings on Thursday, driven by strong sales of its specialty beer offerings — a high-end segment that has made Constellation a growth leader in the market. When the Club holding reports fiscal third-quarter 2023 results before the opening bell on Thursday, analysts expect earnings-per-share to come in at $2.9 a share, up 16.9% from last year, while total revenue should climb 3 % year-over-year, to $2.39 billion, according to estimates by Refinitiv. U.S.-based Constellation’s growth in the beer market has been propelled by its 3 Mexican beer brands — Modelo Especial, Corona and Pacifico. The company also owns a range of other high-quality alcohol brands, including Svedka vodka and Kim Crawford sauvignon blanc. Constellation is currently the No. 2 supplier in the U.S. wine market. Despite the positive earnings estimates, signs of softer demand for Modelo has had some investors worried. Shares of Constellation have fallen roughly 5% over the past month, to around $234 apiece. Still, analysts don’t expect a recent slump in Modelo volumes to weigh on the long-term growth of Constellation’s beer offerings. “While we expect near-term beer trends to remain somewhat volatile…given a seasonal lull in consumption, varying promotional cadences across brands, and shifts in trade inventories…we do not at this point expect STZ’s premium beer portfolio to be at an outsized disadvantage,” analysts at Deutsche Bank wrote in a recent research note. Meanwhile, analysts at RBC Capital wrote in a note late last month: “We acknowledge slowing volume trends in the near term, but do not believe it changes STZ’s ability to deliver 7-9% beer revenue growth in FY 2023 and beyond.” And analysts at Wedbush don’t see “downside risk to current top line or operating income” for Constellation’s fiscal third. For the company’s part, Constellation CFO Garth Hankinson called the high-end beer consumer “resilient” during a Morgan Stanley conference last month. “Most consumers see Constellation’s beverages as a staple, not a discretionary item,” he said. The Club take The recent short-term volatility in Constellation’s fast-growing core beer brand, Modelo Especial, naturally sparks concerns for the company’s market share position — but this doesn’t shake our confidence in Constellation’s ability to dominate the high-end beer market. Modelo Especial has consistently been a market-share gainer. The brand is the fastest-growing beer by sales in the U.S., holds the No. 1 spot in the country’s high-end beer market and the No. 2 in the overall beer market, and has been the No.1 share gainer among Constellation’s beer portfolio during the company’s last 6 consecutive quarters, according to management. Constellation’s high level of cash generation allows it to allocate capital to pay down debt and increase buybacks and dividends for shareholders, a key factor of our investment case. Moreover, Constellation’s recent decision to eliminate its dual-class share structure puts the company in a strong position to deliver for all shareholders. We bought 25 shares of STZ in late December, taking advantage of the stock’s recent pullback. (Jim Cramer’s Charitable Trust is long STZ. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Trucks with Constellation Brands Inc. Corona and Modelo beer sit during a delivery in the Zona Rosa neighborhood in Mexico City, Mexico.

Susana Gonzalez | Bloomberg | Getty Images