So-called "sin stocks" can be a touchy topic when looking to invest for future growth, current income, or both. Volatility has to be expected over the long term when government legislation could always be involved. However, the times of Prohibition are gone and sales of alcohol are consistently strong and growing. In 2016 alone, supplier sales of premium spirits were up 4.5% to $25.2 billion. My point is simple: alcohol sales aren't going away and it's time to find strong options to invest with.
Arguably, the strongest option currently is Constellation Brands (STZ), based out of Victor, NY. STZ has grown over time to the world's largest wine distributor (think Robert Mondavi and Clos du Bois wines) as well as the U.S.’s third-largest beer brewer (following AB InBev (NYSE:BUD) and SABMiller (OTCPK:SBMRY)). Their portfolio of household-named beers includes Modelo Especial (U.S. business only - a purchase from AB InBev after a Justice Department injunction) and craft beer darling, Ballast Point (a $1 billion acquisition back in 2015). They also own premium spirits such as Paul Masson Grande Amber Brandy and Black Velvet Canadian Whiskey.
So, let's talk about demand for booze. Alcohol sales in 2016 broke down like this - Beer 47%, Spirits 36%, and Wine 17%. As noted above, STZ has a portfolio full of all three aspects of the alcoholic beverage industry, remaining diversified and willing to acquire up-start businesses.
STZ's market cap has incrementally risen to $39.48 billion with a forward P/E ratio of 25.33, sitting just above the Alcoholic Beverage sector average of 23.27 but below the S&P 500 average of 25.51. Revenue has grown to $7.4 billion, and both the top and bottom lines remain positive for quarterly growth. Quarterly earnings growth YoY come in at 26.5% and, of note, in the previous four quarters, STZ has an average positive earnings beat of 11.7%. Strong results and strong leadership from CEO Robert Sands.
For income investors and dividend seekers, STZ's dividend comes in at 0.85% annual dividend yield which, on the surface, doesn't appear like something to jump on immediately. However, the company has increased their yearly dividend from $0.31 per share to $0.52 per share since introducing their dividend in May 2015. That's an increase of over 40% in their dividend in a little over two years. In March 2017's investor meeting, Sands noted a potential dividend hike to $0.47 per share but was able to improve that. Strong leadership from Sands.
Analysts, categorically, are bullish with an upgrade from BofA back in January 2017. The 17-analyst price target sits at $212.71, a 5% increase from current market price of around $202. Be cautious, however; Goldman Sachs downgraded the stock back in July 2017 to "Neutral" amidst President Trump's proposed border tax. Considering very little attention is being focused in that direction, STZ is a safe investment for years to come.
My bottom line on STZ is simple: wait to see if this stock can drop below $200 per share before earnings (10/5/2017) and cash in on another double-digit earning growth. STZ is a stock for investors and not, necessarily, traders. Due to volatility amongst "sin stocks", it would be prudent to keep a close eye on STZ in the short run with hopes of cashing in big over the long run.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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.