Does Buffett like beer more than Coke?
Valuation of Constellation Brands (STZ)
I have no idea what beer Warren Buffett drinks, or if he even drinks beer, but Berkshire Hathaway did purchase shares in Constellation Brands ($STZ) in Q4 of 2024. Did the oracle or one of his generals overpay? (We don’t know who actually put this investment on, and it’s only a c0.5% position). Still, it’s interesting to take a look as Berkshire is now a top 10 holder!
c80% of the company’s sales is beer. STZ owns the exclusive U.S. rights to Corona and Modelo through a perpetual brand license acquired in 2013 as part of a $4.8 billion deal with AB InBev.
Market Info
Ticker: STZ
Stock Price (Local): $170.96
52-W High (April 11, 2024): $274.87
52-W Low (February 12, 2025): $160.46
5-Year Beta: 0.79
Avg Volume (3-month, millions): 2.9
Avg Volume (USD, millions): $497.4
Shares outstanding (basic): 181
Enterprise Value
Market Cap (USD, millions): $30,893
Plus: Total Debt $12,120, of which Leases $696
Plus: Minority Interest $254
Less: Cash and ST Investments -$74
EV (USD, millions) $43,193
Key Valuation Metrics
P/E forward: 13x
EV/EBITDA forward: 11.0x
Dividend Yield: 2.4%
Key Persons
President, CEO & Director: Newlands, William
Executive VP & CFO: Hankinson, Garth
Executive VP, Chief Legal Officer & Secretary: Bourdeau, James
Board of Directors, Chairman: Baldwin, Christopher
Top Holders
Vanguard: 10%
Capital: Research and Mgmt 9%
BlackRock: 6%
State Street: 4%
RSS Business Holdings: 3%
Berkshire Hathaway: 3%
Insiders above 1%
Bennett, Abigail J: 2%
Performance
Over the last 5 and 10 years, the stock has grown at a rate below historical EPS. While the 10 year CAGR in EPS was 14%, the stock only rose 4%. Growth slowed in the last 5 years to a 5% CAGR with the stock practically flat.
Forecasts and DCF Valuation
I took consensus estimates for revenue and operating profit for the next 3 years. Beyond that, I assumed a 3% growth (versus 4% CAGR the last 5 years) and a 34% operating margin (in line with historical).
Non-Cash Working Capital is derived from Non-Cash Current Assets and Liabilities as per FY2024. This results in an NCWC that is 17% of sales (vs 23% in the prior decade, but compares to an industry average of 16%). For the industry, you can look at the data provided by NYU professor Damodaran on his website (click here). Net Capex (CAPEX minus depreciation) is 6%, which is also in line with the industry.
This gives me a value of $181. As I’m typing this up, the stock has jumped 5% and is actually back at… $181.
Now, you may not agree with my WACC or my margins. I’ll assume you don’t have a problem with the 3% growth :) So let’s take a look at some sensitivity analysis.
Let’s assume that the WACC goes up by 1%, then the value drops by -c$40.
If the EBITDA margin drops by 2% then the value drops by -$10.
Perhaps the perpetuity growth should be 4% instead of the 3% that I used, well then the value would go up by +$20.
So Berkshire’s purchase at $200+ (look at the chart above) is a little rich to me. But their team probably spent more time than I looking at this, and maybe saw something that I didn’t price in.
Decent company and worthy of taking a look at! Anyone buying now can brag that they got in at a better price than Berkshire :) Let me know what you think in the comments. Subscribe (it’s free) if you find this interesting. Your interest provides me with fuel :)
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