08:08 AM EST, 02/13/2019 (MT Newswires) -- Constellation Brands (STZ), which purchased a multi-billion dollar stake in medical marijuana company Canopy Growth last summer, is an "underappreciated growth story at a bargain price", according to a note issued by brokerage firm Morgan Stanley (MS).
The firm said that the market is "materially mispricing STZ's [Constellation Brands] medium-term revenue growth trajectory" saying that a series of negative events had driven outsized recent stock underperformance for Constellation Brands, which produces beers, wines and spirits.
Post the stock pullback, Morgan Stanley said that its 7.3% five-year Constellation Brands beer revenue growth forecast is approximately 325 basis points (or approximately 1.75 times) above the approximate 4% market-implied growth based on its analysis.
"We see scope for material multiple re-rating that drives an asymmetric ~3:1 bull/bear return profile and 35% base case upside" Morgan Stanley's note stated. The firm raised its price target for Constellation to $233 from $207 citing Canopy Growth's recent run-up,higher market/beverage company multiples and increased conviction on Constellation's beer revenue growth story.
Constellation invested $4 billion in Canopy Growth last August, the largest investment to date in the cannabis space.
It said at the time of the investment that the funds would enable Canopy Growth to acquire key assets needed to establish global scale in the nearly 30 countries pursuing a federally permissible medical cannabis program, while laying the global foundation needed for new recreational cannabis markets.
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