The Street's Reaction To Constellation's Q2 Earnings

Alcoholic beverage maker Constellation Brands, Inc. (NYSE: STZ) reported Thursday its second-quarter results, which sent the stock higher. Here's a summary of what some of the Street's top analysts are saying after the print.

The Analysts

• Macquarie Research's Caroline Levy maintains Constellation Brands at Outperform, unchanged $233 price target.
• Susquehanna Financial Group's Pablo Zuanic maintains at Negative, price target lifted from $165 to $174.
• Deutsche Bank's Steve Powers maintains at Buy, price target lifted from $233 to $245.
• Guggenheim's Laurent Grandet maintains at Sell, price target lifted from $177 to $18.

Macquarie: Less Marketing Required

Levy said in a report Constellation's earnings print is highlighted by:

• A strong beat in organic sales of 10.1 percent versus estimates of 7.6 percent.
• Beer organic sales growth of 10.5 percent exceeded estimates of 9.5 percent.
• Wine and spirit organic sales growth of 9.3 percent was a "big surprise."
• Lower than expected advertising expenses.

Susquehanna: Low Quality Report

Dgging beyond the headlines shows it was a "low quality" beat, Zuanic said in a report. For example, beer depletion (sales-to-retailers) growth was one point better than the first quarter, but the comp was 3.5 points easier. Zuanic said it's also unclear how beer shipments lagged depletions in the quarter despite new beer brands like Corona Familiar and Premier filling the pipeline.

Beer gross margins were up 90 basis points in the quarter, but beer EBIT margins benefited from marketing expense timing, the analyst wrote. Normalized for expense timing, beer EBIT margins would have come in 50 basis points lower in the quarter versus an already bearish estimate.

Deutsche: Momentum Confirmed

The earnings report and conference call solidifies the bullish view that the beer business is seeing "robust" momentum, Powers said in a report. Concerns entering the quarter of increasing cost of growth are now "misplaced."

The wine business did show signs of continued struggles at the low-end price point, bt the company as a whole remains a "rare growth story" within the consumer packaged goods business.

Guggenheim: Unaddressed Concerns

There are two concerns that haven't been addressed, Grandet said in a report.

Corono Extra and Light's declining performance in the quarter is a "major issue" as management insists that Premier and Familiar are incremental to the Corona segment.

It's not yet clear what competitive advantage the company gains with its multi-billion dollar investment in Canopy Growth Corp (NYSE: CGC) since the cannabis industry is still in the "earliest part of the first inning." Constellation could have moved into the cannabis space at a fraction of the cost with much less risk on its own.

Related Links:

Jefferies: Constellation Brands Is Our Top Large-Cap Growth Idea

Cramer's 3 Highlights From Constellation Brands' Beat-And-Raise Q2

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