January 5, 2017 | 10:07 AM by Fahad Khalid | fkhalid@jaguaranalytics.com

Unlock: Constellation Brands (STZ) – Cautious View from Mid December

It pays to do fundamental research. We have been staunchly bullish on STZ going back last 18 months. That view changed on December 20 on assumption that Mexican beer sales YoY comparisons will get tough from here and valuations are stretched. Here is note to clients. To learn more about our approach and how you can become a successful trader, sign up for 2 week trial and test drive live chat room with some of the best traders: SUBSCRIBE

December 20, 2016

Constellation Brands (STZ) – Although there is no specific news out there to explain the sell off, but there are some concerns that 1) beer volume from Mexico will not be able to sustain this hyper growth we saw in 2016 and 2) currency translation will affect them negatively.

See two pics below. Note in both pictures Constellation hyper beer volume growth has been led by imports from Mexico. While we haven’t seen any evidence of slowdown in this yet, on December 1 JP Morgan cut Heineken (HEINY) to Neutral and sharply lowered forward earnings as well as removed it from Europe Focus List. Reason: Mexico accounts for 18% of Heineken’s sales and JP Morgan says:

“Mexico accounts for c.18% of Heineken’s group profit. We expect beer industry volume growth to normalize from HSD levels to LSD (potentially worse if the economy slows). We expect FX transaction could adversely impact margins in Mexico by over -300bps, all else equal, in FY17E, which would erode the cost savings of recent years.”

Note nearly all of STZ beer sales come from Mexican brands and I believe YoY comparisons in 2017 will get tough while valuation is full.

STZ 1

STZ 2

STZ 3

#HEINY#STZ

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