Alcohol producer Constellation Brands secured a nod from the the Oracle of Omaha.
A recent SEC filing disclosed Warren Buffett’s Berkshire Hathaway (BRK-B) holds a 5.6 million share stake in Constellation Brands (STZ) as of the end of 2024. This makes it the sixth-largest shareholder of the beer and liquor giant. Following news of the filing, shares of the company jumped more than 5% on Tuesday.
“It’s a positive for Constellation Brands … it’s a big vote of confidence,” CFRA analyst Garrett Nelson said. Other investors follow Berkshire Hathaway’s moves quite often “given [its] track record of success going back many decades.”
Nelson said it’s also an upside for Berkshire Hathaway, given its “bargain hunter” investment mentality.
“They look for deep value … stocks that are trading at a steep discount to projected future cash flows,” Nelson said. “What they see in Constellation Brands [is] a stock that has not performed well just recently.”
It’s likely that Berkshire has already lost money on its stake, given Constellation shares are down 23% year to date.
However, Nelson said Buffett’s team has likely done extensive modeling and is seeing value over the “intermediate and longer term.” Constellation’s forward P/E ratio of 10.92 is its lowest in more than a decade, compared to rivals Molson Coors’ (TAP) 10.19 and Anheuser-Busch’s (BUD) 14.86.
“The multiples reflect skepticism regarding the near-term earnings,” Nelson said. In the third quarter, the company missed Wall Street’s expectations on the top and bottom lines. Beer volume grew 3.90%, while wine and spirits volumes are down 11.60%, both also missing estimates.
Chris Johnson, director at S&P Global Ratings, said investors’ recent worry is largely around consumers pulling back and a different product mix being sold as a result. Offering larger value pack sizes can lead to margin erosion.
The company also slashed its fiscal 2025 outlook to organic net sales growth of 2% to 5%, lower than the previously expected range of 4% to 6%.
Portfolio Wealth Advisors president Lee Munson told Yahoo Finance that qualities Buffett likes include a “strong cash flow [and] assets that aren’t going to go anywhere.”
Johnson said Constellation Brands has a healthy free cash flow “well north of a billion dollars annually.” And that’s after the company has been spending to expand capacity to grow its beer volume, particularly in the US.