STZ Earnings Selloff Prices In Mexico Tariff Concerns
Shares of Constellation Brands (STZ) are getting hit hard today (-17%) after reporting 3QFY25 earnings. The stock has been dealing with concerns about Trump placing 25% tariffs on imports of Mexican goods since Mexican beers like Modelo, Corona and Pacifico make up more than 80% of STZ’s sales.
Aaron Back had a prescient article in the WSJ on STZ a couple weeks ago saying that the stock was still too expensive given the substantial risks to its business from the potential tariffs (“Modelo Brewer Awaits Tariff Decision” [SUBSCRIPTION REQUIRED], December 31, 2024). In addition, US beer consumption has been weak of late with STZ’s depletions increasing only 3.2% in the quarter.
But today’s selloff more than prices in these concerns IMO. STZ slightly reduced the lower end of its FY25 EPS guidance from $13.60-$13.80 to $13.40-$13.80. At its current price of $182, STZ is therefore trading at 13.4x the midpoint of current year guidance. Modelo, Corona and Pacifico are first class beers and STZ is a high quality company. The stock also pays a $1.01 quarterly dividend which works out to 2.22% yield at the current price.
Disclosure: Top Gun is long shares of STZ.