Should You Buy Constellation Brands (STZ) Stock Ahead of Earnings?

Shares of Constellation Brands STZ climbed nearly 1% on Tuesday, just a couple days before the alcoholic beverage giant is set to post its fourth quarter financial results. Investors are often on the hunt for stocks that look poised to top earnings estimates, but after the recent, nearly market-wide downturn, expect Wall Street to really hone in on Constellation when it reports on Thursday.

Constellation’s brands include import beer powers Corona and Modelo, Kim Crawford Wines, and Casa Noble Tequila. The New York-based company’s stock has gone on an outstanding run over the last six years, with its stock price skyrocketing from roughly $22 per share in March 2012 all the way up to its current price tag of $222 per share.

It seems clear that Constellation has been a growth company for years, and most investors hope that this remains the case for years to come. However, shares of Constellation have sunk by 3.6% over the last 12 weeks.

With that said, let’s take a closer look at some of Constellation’s current estimates to understand if investors should consider buying the stock ahead of earnings.

Latest Outlook and Valuation

Based on our latest Zacks Consensus Estimates, we expect Constellation to report adjusted earnings of $1.74 per share, which would mark 17.6% growth from the year-ago period. The company is also projected to see its revenues jump by nearly 8% to hit $1.76 billion.

Heading into the report, STZ is trading with a Forward P/E of 22.7. This marks a discount compared to the “Beverages – Alcohol” industry’s average P/E of 26.9. Constellation is also currently trading at a lower earnings multiple than its high point of 25.3x forward earnings over the last year and is almost directly in line with its median 52-week P/E of 22.9.

Earnings ESP Whispers

Investors will also want to anticipate the likelihood that Constellation surprises investors with better-than-anticipated earnings results. For this, we turn to our Earnings ESP figure.

Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst estimates. This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

STZ is rocking a Zacks Rank #3 (Hold) and an Earnings ESP of 1.64%. This is because the company’s Most Accurate Estimate for earnings sits at $1.77 per share, meaning that the most recent analyst estimates have been higher than the consensus. This improved outlook is a good sign just two days out from Constellation’s earnings report.

Price Performance and Surprise History

Another important thing to consider ahead of Constellation’s report is the company’s history of earnings surprises and the effect that these surprises have had on share prices.

Constellation Brands Inc Price, Consensus and EPS Surprise

Constellation Brands Inc Price, Consensus and EPS Surprise | Constellation Brands Inc Quote

We can see that Constellation boasts a strong earnings surprise history, yet its bottom-line results have not always translated into positive momentum for the stock. Looking at a more consolidated period, the company has posted strong earnings beats in the trailing four quarters, with an average surprise of 11.9%.

We judge the price effect of these earnings beats by comparing the closing price of the stock two days before the report and two days after the report. Constellation has seen its stock price surge immediately following its earnings release in three out of the last four quarters.  

As most investors know, past performance is hardly an indicator of future success, but we can see that investors have tended to reward STZ’s earnings beats recently. On top of that, Constellation looks poised to beat earnings yet again and marks a discount to an industry that is has, for the most part, outperformed.

Constellation is set to report its fiscal fourth quarter and full-year financial results before the markets open on Thursday, March 29.

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