Morgan Stanley reiterated its bullish view on Constellation Brands (NYSE:STZ) on increased confidence for the long-term growth prospects and near-term upside.
Analyst Dara Mohsenian and team point to the continued and consistent Modelo brand momentum, with no signs of a drop-off in the brand even as it reaches much higher share levels. The brand is seen having more room to expand and boost its household penetration.
Pricing upside is seen for STZ, as well as more market share potential even with the macroeconomic climate in question.
On valuation: “Even after recent outperformance, STZ is still 20-25% undervalued on a topline growth vs. valuation basis vs. peers, and trading well below its 5-yr relative NTM historical P/E average vs. beverages peers at a 25% discount (vs. a 14% 5-yr avg) despite sustained LT HSD topline growth at STZ toward the higher-end of beverage peers.”
Mohsenian and team said the market is pricing in only mid-single-digit topline growth on a DCF implied basis, below the firm’s 8% STZ forecast.
The firm kept an Overweight rating on STZ and said it remains one of its preferred names in the sector. The price target on STZ is upped to $298 from $294 to rep more than 30% upside. The PT works out to 22X the FY24 EPS estimate.
Dig into the transcript of Constellation Brands’ appearance at the RBC Capital Markets Global Consumer & Retail Conference.