Pour Yourself a Glass of Constellation Brands
Thursday morning, wine and spirits maker Constellation -- it sells brands such as Robert Mondavi, Svedka and Corona -- is poised to report 65 cents a share, up 51% from 2010. Constellation has spent the last five years cutting costs and selling brands that don't fit the "premium-category" wines priced from $5 to $20 a bottle where it wants to cement its lead. During that time it has reduced its debt from $5.3 billion to $3 billion and cut 5,100 employees to a slimmer payroll of 4,300.
Molson Coors does not look to be in such market-beatingly good shape. Its second quarter profit of $1.23, reported on August 2, fell 4.65% below analysts' expectations. And in the last month analysts cut their Molson Coors EPS projections for 2011 -- by 3 cents to $3.55 a share -- and by 7 cents $3.74 a share for 2012.
Brown Forman, maker of premium brands, such as Jack Daniel's, Finlandia, Southern Comfort and Canadian Mist, is doing much better. Brown Forman's adjusted EPS grew 7% in to 81 cents a share in the first quarter of fiscal 2012 on 12.8% revenue growth due to its strong performance in the international market.
So should you buy Brown Forman and avoid the other two? No -- avoid Brown Forman and Molson Coors and consider investing in Constellation. Here's why:
- Constellation: shrinking, profitable company; fairly valued stock. Constellation revenues fell 1% to $3.2 billion in the last year while its net income popped 463% to $485 million yielding a very wide 15.1% profit margin. And its Price-earnings-to-growth ratio (PEG) -- 1.0 is fair value -- is reasonable at 1.00 with a P/E of 6.8 on earnings forecast to grow 6.8% to $2.08 in fiscal 2013.
- Molson Coors: growing, highly profitable company, over-priced stock. Molson Coors revenues are up 7.3% in the last year to $3.3 billion and its net income fell 8.4% to $675 million while it earned an impressive 20.3% net profit margin. But its PEG is an exorbitant 2.09 on a P/E of 11.1 with earnings forecast to grow 5.3% to $3.74 in 2012.
- Brown Forman: growing, profitable company, over-priced priced stock. Brown Forman revenues are up 5.5% in the last year to $3.5 billion and its net income rose 27.5% to $578 million while it earned a solid 16.5% net profit margin. And its PEG is an over-valued 1.98 on a P/E of 17.8 with earnings forecast to grow 9% to $4.01 in fiscal 2013.