Is Constellation Brands a Buy Post-Earnings?

With shares of Constellation Brands (NYSE:STZ) trading around $59, is STZ an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Constellation Brands produces and markets beverage alcohol. The company sells wine across various categories, including table wine, sparkling wine, and dessert wine; and spirits under the Robert Mondavi Brands, Clos du Bois, Estancia, Black Box, Arbor Mist, Blackstone, Rex Goliath, Simi, Toasted Head, Mark West, Ravenswood, Franciscan Estate, Ruffino, Wild Horse, Kim Crawford, Mount Veeder, Nobilo, Inniskillin, Jackson-Triggs, SVEDKA Vodka, Black Velvet Canadian Whisky, and Paul Masson Grande Amber Brandy brand names.

It also produces and markets wine kits and beverage alcohol refreshment drinks; and bulk wine and other related products, as well as provides related services. In addition, Constellation Brands imports, markets, and sells the Modelo Brands beer. Its products are primarily sold to wholesale distributors, importers, retailers, on-premise locations, and government alcohol beverage control agencies in the United States, Canada, the United Kingdom, Australia, and internationally.

On Thursday morning, Constellation Brands reported earnings and revenue figures that surpassed analyst expectations. A revaluation of its original 50 percent stake in Crown Imports and a completed acquisition of the remaining portion offered a significant boost to earnings. “As previously discussed, we expect most of our growth for the wine and spirits business to be generated during the second half of the year resulting from the timing of product shipments,” stated the President and CEO, Robert S. Sands.

T = Technicals on the Stock Chart Are Strong

Constellation Brands stock has been exploding to the upside in recent months. The stock is currently trading slightly below all-time high prices but looks ready to move higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Constellation Brands is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

STZ

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Constellation Brands options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Constellation Brands Options

24.93%

23%

21%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

October Options

Flat

Average

November Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Constellation Brands’ stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Constellation Brands look like and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

92.00%

-28.95%

-17.71%

11.54%

Revenue Growth (Y-O-Y)

109.02%

6.08%

10.79%

9.45%

Earnings Reaction

2.92%*

-3.57%

0.28%

-0.66%

Constellation Brands has seen mixed earnings and rising revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about Constellation Brands’ recent earnings announcements.

* As of this writing

P = Excellent Relative Performance Versus Peers and Sector

How has Constellation Brands stock done relative to its peers, Molson Coors Brewing Company (NYSE:TAP), Beam (NYSE:BEAM), Brown-Forman (NASDAQ:BFB), and sector?

Constellation Brands

Molson Coors

Beam

Brown-Forman

Sector

Year-to-Date Return

68.72%

16.43%

8.79%

7.65%

14.37%

Constellation Brands has been a relative performance leader, year-to-date.

Conclusion

Constellation Brands is a producer and marketer of alcohol products with a worldwide presence. Recent earnings news has investors upbeat about the company. The stock has been exploding to the upside and is now trading slightly below all-time high prices. Over the last four quarters, earnings have been mixed while revenues have been rising which has produced conflicting feelings among investors about earnings announcements. Relative to its peers and sector, Constellation Brands has been a year-to-date performance leader. Look for Constellation Brands to OUTPERFORM.

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