Barron's Drinks to Constellation

| About: Constellation Brands, (STZ)
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One of the few good-news stories of last week came from wine-maker Constellation Brands (NYSE:STZ) - which reported a 50% jump in FQ1 net income, and gross margins that rose more than 5% to 35%. Its shares still trade at a substantial bargain to its peers, Barron's The Trader notes

At about $21, Constellation shares trade at 12.2 times projected 2009 profits -- compared with about 18.8 times for Brown Forman (NYSE:BF.B), 13.4 times for Diageo (NYSEARCA:DIA) and the 15.5 times average for distillers and vintners. 

Spirit sales climbed 9%, but branded-wines shot up 24%; apparently cash-strapped consumers are foregoing the restaurant, but are breaking out a bottle to enhance their home-cooked meals.

Constellation has restructured its lineup to take advantage of an increasingly mature wine drinker - dumping cheap names like Inglenook and Almaden, and promoting a solid $10-15/bottle lineup that includes Clos du Bois, Blackstone, Ravenswood, Hogue Cellars, Toasted Head and Robert Mondavi Private Selections. 

Its Svedka vodka also looks hipper and swankier than its price tag suggests, and stands out in the staggering sea of pricey, pretentious premium vodkas. 

Shares are almost 20% cheaper than they were in October, and its product is bound to please both bulls and bears: "It's a potential bargain if more people need to take the edge off this bear market, or toast the bull one when it finally arrives."


A recent CNBC segment questioned whether Constellation was considering buying pieces of Foster's. On Constellation's July 1 earnings call, executives responded

Our focus is on hunkering down and paying down debt, so it is as we have said, which is we are focused on generating internal efficiencies, improving free cash flow, improving ROIC and paying down debt. So these are key initiatives for our management team.