Constellation Brands, Inc. (STZ): A Bull Case Theory

We came across a bullish thesis on Constellation Brands, Inc. on Valueinvesting subreddit by raytoei. In this article, we will summarize the bulls’ thesis on STZ. Constellation Brands, Inc.'s share was trading at $175.83 as of July 29^th. STZ’s trailing and forward P/E were 18.50 and 13.76 respectively according to Yahoo Finance.

Constellation Brands (STZ), trading at $162.68, appears undervalued relative to its historical and potential earnings growth. The company generates $10 billion in revenue, delivers a 2.49% dividend yield, and boasts strong normalized returns—10.51% ROA, 29.45% ROE, and 13.51% ROIC. Despite lumpy performance, normalized EPS has grown from $5.43 in FY2016 to an estimated $13.69 in FY2025, implying a ~12% one-year growth, ~2.9% three-year CAGR, and ~4.2% five-year CAGR, with smoothed long-term growth closer to 8% annually.

However, the market appears to price in only 1.09% perpetual growth based on a conservative valuation framework using a 9% discount rate and FY2026 midpoint EPS of $12.75. This is starkly below management guidance, which suggests mid- to high-single-digit EPS growth over the next two years. Analyst projections similarly point to ~7% growth, aligning more with historical performance than with market-implied pessimism.

The muted market expectations may stem from overhangs such as GLP-1 obesity drugs, shifting Gen Z preferences, cannabis disruption, tariff concerns, and post-COVID consumption normalization. Yet, these pressures are likely temporary. Constellation retains strong fundamentals and a resilient portfolio, with upside potential if sentiment corrects.

Notably, management’s April 2024 outlook anticipates FY27 growth in the mid- to high-single digits, and FY28 growth in the low- to mid-single digits. Upcoming Q1 results may also provide clarity on tariffs, impacting peers like Diageo and Brown-Forman. Overall, the current valuation reflects an overly cautious stance, offering a contrarian opportunity for long-term investors willing to bet on normalization and reacceleration in growth..

Previously we covered a bullish thesis on Constellation Brands, Inc. by RepresentativeAd4940 in March 2025, which highlighted brand strength, valuation adjusted for impairments, and steady cash flow. The company’s stock price has remained flat since our coverage. This is because the thesis hasn’t yet played out due to persistent macro concerns. Raytoei shares an identical view but emphasizes valuation mispricing based on conservative growth assumptions.

Constellation Brands, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 44 hedge fund portfolios held STZ at the end of the first quarter which was 51 in the previous quarter. While we acknowledge the potential of STZ as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.