It's Time To Buy Constellation Brands Before The Crown Imports Deal Is Finalized

| About: Constellation Brands, (STZ)

Shares of Constellation Brands (NYSE:STZ) hit a new all-time high on Friday, October 5 after the wine and spirits company reported second quarter earnings. The company beat earnings per share estimates, but fell short on the expected revenue numbers analysts were expecting. Updated guidance and news about the recent Crown Imports acquisition kept shareholders and investors bullish on the company.

Net sales for the second quarter increased 1% to $699 million. Analysts on Yahoo Finance were hoping for sales of $710 million. Operating income dropped five percent to $141 million due to lower operating margins of 20.1%. Net income came in at $131 million, a drop of 21% from the previous year. Earnings per share were reported at $0.71, down 8% from the second quarter the previous year. However, it was a beat, as analysts had forecast earnings per share of $0.54 for the quarter.

The company's focal point going forward is Crown Imports. Crown was responsible of $71 million in earnings for Constellation in the second quarter. The Crown Imports joint venture saw net sales of $788 million in the quarter -- an increase of 8% from the previous year. The quarter also marked the 10th in a row in which Crown outperformed the U.S. beer industry overall. Crown was a joint venture with Anheuser Busch InBev (NYSE:BUD), until Constellation recently announced its intent to purchase the remaining stake in the business.

The acquisition of the remaining 50% Constellation does not currently own in the Crown Imports joint venture is set to close in the first quarter of calendar 2013. Back in June, I discussed the possibility that Constellation would benefit from Anheuser Busch's purchase of Grupo Modelo. However, I failed to recognize that Constellation would acquire Crown Imports in its entirety. In fact, I suggested the opposite -- that Constellation would sell its 50% stake in Crown. Funding has been completed -- including a recent senior notes loan of $650 million with an interest rate of 4.625%, and a due date of March 2023.

As a result, Constellation becomes the big winner in Anheuser Busch's Grupo Modelo buyout. Anheuser Busch completed the acquisition to gain key positions in emerging markets. To satisfy antitrust worries and pay for part of the acquisition, Anheuser Busch sold its 50% stake in Crown to Constellation. I also discussed the possibility that Anheuser Busch could sell off other brands to satisfy antitrust concerns, and suggested Constellation as a possible winner once again.

Constellation has put its money into the beer market, and will now have a huge venture that is growing through the import of key beer brands into the United States. Here is a list of brands that Constellation will now have 100% distribution rights to in the United States:

· Corona Extra

· Corona Light

· Modelo Especial

· Negra Modelo

· Pacifico

· Victoria

· Tsingtao Lager

· Tsingtao Pure Draft

The Crown Imports business has been a strong growth factor for Constellation shares. The company has used cash earned from this joint venture to purchase wine and liquor assets from other companies. Constellation now has the ability to market and price the brands in the United States. Anheuser Busch has the ability to purchase the entire Crown stake at a later date, but it would cost a nice premium, leaving plenty of safety in shares of Constellation.

For the fiscal year ending February, Constellation projects earnings per share of $2.13. Analysts forecast that the company will earn $1.99 on the fiscal year from $2.75 billion in sales. The following fiscal year, analysts see earnings per share of $2.71 from $5.65 billion in sales. The huge increase in sales will likely come as a result of Constellation assuming full ownership of the Crown Imports brand.

I have been a strong follower of Constellation shares and have been waiting for a good entry point. Shares have now hit new highs, and they still look attractive. This is a great company, and I believe now is the time to accumulate shares -- before the Crown Imports deal is officially closed. Look for analysts to raise target prices on Constellation shares, and also to create new earnings per share targets as the Crown transaction is processed.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in STZ over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.