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Recently I had the honor of accompanying a group of friends to Las Vegas for a bachelor party. The betrothed couple in question for this event has been very dear to me for years — and honestly, aside from a few of the typical travel hiccups, the trip was a blast.
I’ve been to Sin City a number of times, and I know firsthand that the things you can do to have a good time are only limited by your imagination (and, yes, perhaps your inhibitions). But among these activities — whether you’re shooting dice, playing Texas Hold ‘Em, lounging at the pool, shopping, or having a nice meal at one of the many five-star restaurants in Vegas — there’s always alcohol within reach.
It got me to thinking… I hope the teetotalers among the StreetAuthority crowd will forgive me for saying this, but a little booze in moderation can make certain activities a little more fun.
Perhaps that’s why alcohol has historically been such a resilient investment. So today, I’d like to share a pick with you from my colleague Jimmy Butts, Chief Investment Strategist of Top Stock Advisor. And as you may have guessed, it has to do with alcohol.
Booze Is Good Business — Especially For This Company
Founded in 1945, Constellation Brands (NYSE: STZ) struggled to find its place in the market for years after several failed attempts to create and sell wine under its own brand. It began to find major success after acquiring several small wineries throughout the 1980s, and then expanded into beer and spirits in the 1990s.
Today, Constellation Brands is a significant player in the alcohol beverage industry. Its portfolio consists of more than 100 brands of beer, wine and spirits sold throughout 100 countries (although 89% of sales come from the United States). Its offerings include iconic brands such as Robert Mondavi wines, Black Velvet Canadian whiskey, Svedka vodka, Cook’s champagne and Corona beer. Here’s a look at how each segment contributed to top-line results in 2015:
Constellation’s imported Mexican beer portfolio makes up 53% of total revenue and about 65% of operating profits. Its total beer portfolio represents about 8% of the total U.S. beer market, although it’s important to note that the two areas Constellation is involved in (imported and craft beers) represent the high-growth areas of the beer market over the past few years.
Now here’s where it gets interesting. Due to the increasing popularity of imported beer (particularly Mexican beer) over the past few years, the company is actually facing more demand than its breweries can meet. The company is addressing this by expanding capacity. Meanwhile, Constellation has been busy acquiring a number of craft breweries (another high-growth segment), most notably California-based Ballast Point, which it bought in November 2015.
The strategic moves made by owning brands in growing subsets of the alcohol and wine business, combined with excellent operational execution by management, has made Constellation shares an incredibly lucrative investment over the years. Just take a look at the chart below.
Despite the impressive gains, there’s no reason to think Constellation isn’t a “buy” at today’s prices.
Constellation announced fiscal 2017 second-quarter earnings on October 6, reporting strong beer sales which led to revenue of more than $2 billion. That’s an increase of 16.6% over the same quarter a year ago. Earnings, meanwhile, were up 24% to $1.75 per share. The company also raised its forecast for the year.
Constellation has also continued its acquisition spree. Earlier this month, the company announced it is buying craft whiskey maker High West Distillery for $160 million. It also recently announced that it acquired a minority stake in craft distillery Bardstown Bourbon Company. These deals expand Constellation’s portfolio into the fast-growing bourbon and rye whiskey categories. The company also increased its footprint in wine by announcing the acquisition of the Charles Smith Wines collection, a Washington-based company that specializes in premium wines.
Bottom line, the outlook for Constellation is still positive. The company sells some of the most recognizable beer, wine and spirit brands in North America. Craft and imported beer are strong growth categories, while wine consumption is also growing in the U.S. Management has done a fine job of quickly integrating acquisitions into the company to contribute to the bottom line, and this should continue going forward.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.