The recent results of Constellation Brands (NYSE:STZ), Molson-Coors (NYSE:TAP) and Brown-Forman (BFA) have been positive but it’s worth digging deeper to uncover a mixed past. Both Constellation and Molson-Coors are undervalued but in comparison to Brown-Forman, their fundamentals are weaker and inconsistent.
This trend seems to be dissipating with their recent asset sales, product diversification and improving management, which has allowed them to widen their net income margins and generate greater returns on their invested capital. But it’s worth noting that these changes have only occurred recently.
Brown-Forman is a good stock to keep an eye on. Despite being overvalued, it has an extraordinary history of consistently positive fundamentals.
Constellation Brands is a wine, spirits and other alcoholic beverages company. CEO and president Robert Sands' pay package rose 25% as Constellation increased in profitability through its sale of 80% of its Australian and British wine business.
Constellation earned an astonishing $2.62 per share in 2011 in comparison to $0.45 per share in fiscal 2010. Constellation has also been able to take advantage of the growing popularity in simple and cheap wines with its new portfolio of unoaked wines that rival the high-end wines in flavor and are a cheaper alternative.
Constellation still has a number of deficiencies worth noting despite being undervalued. Capital expenditures have ballooned and its return on equity has been inconsistent, on average generating a negative return on the shareholders’ equity since 2002.
Growth Price (DCF): $35.22
Current Price: $21.06
STZ is undervalued by: 67.25%
Our Grade: 56.91/100. Find our full report here.
Molson-Coors Brewing is a holding company that owns a diverse portfolio of signature beer brands (Coors, Molson, Keystone and Blue Moon). It has recently begun transforming itself into an attractive dividend stock by doubling its payout from four years ago. Molson-Coors announced in May a 14% increase in its quarterly dividend. These changes signify a positive trend in Molson-Coors fundamentals as it pulls itself out of a series of disappointing fiscal years.
Molson-Coors currently boasts a strong balance sheet where total assets have been at least double the total liabilities and consistent positive free cash flow since 2002. Molson-Coors has also been able to widen its net-income margin in 2009 by nearly three times more than the previous year, along with raising net income. Investors should be aware that these positive changes have only been achieved fairly recently to Molson-Coors’ fundamentals.
Growth Price (DCF): $76.91
Current Price: $44.15
TAP is undervalued by: 74.21%
Our Grade: 74.49/100. Find our full report here.
Brown-Forman manufactures, bottles and markets a variety of alcoholic beverage brands including Jack Daniels, Southern Comfort and Finlandia. Brown-Forman recently posted its fourth-quarter 2011 results that recorded a growth of 8% in net sales and a rise in gross profit of 12% from the prior year’s quarter. These figures can be attributed to an asset sale of California-based wine operations, which had become a drag on growth, and a low tax rate. Brown-Forman has also begun concentrating on the international market to combat a sluggish U.S. market.
Brown-Forman’s fundamentals are impressive and rival its peers. Cash ROIC has hovered around 20% in the last three years; it delivers a strong return on equity and has significantly decreased its capital expenditure ratio in recent years. On top of that, it's regularly paid out dividends and bought back stock. Brown-Forman’s performance outshines Molson-Coors and Constellation Brands despite being overvalued.
Growth Price (DCF): $57.13
Current Price: $70.84
BFA is overvalued by: 23%
Our Grade: 59.20/100. Find our full report here.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.