Consumer Staples Group Recommendation: Buy Quantity: 5 shares at

Consumer Staples Group Recommendation: Buy Quantity: 5 shares at

Consumer Staples Group Recommendation: Buy Quantity: 5 shares at $153.05 (as of 1/24/17) Joshua Hayward, Caroline Yevak, Sreya Alturi, Akshay Patel Ja...

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Consumer Staples Group Recommendation: Buy Quantity: 5 shares at $153.05 (as of 1/24/17) Joshua Hayward, Caroline Yevak, Sreya Alturi, Akshay Patel January 25, 2017 UNC PMT-Consumer Staples Group

Agenda I. II. III. IV. V.

Investment thesis Industry overview Company overview Investment catalysts Valuation

UNC PMT-Consumer Staples Group

Investment thesis  With a strong and reputable stable of brands in America, STZ is poised to rebound in the coming year as alcohol consumption in the US continues to increase.

Price: $153.05(a) 52 week range: $173.55-$103.223

 Recent rhetoric by President Trump concerning the trading relationship between the US and Mexico has sent STZ’s price down  However the company’s financials are still very solid and the recent down turn has created an excellent buying opportunity (a) Prices as of 1/24/2017 Source: ft.com

UNC PMT-Consumer Staples Group

Industry Breakdown

UNC PMT-Consumer Staples Group

Beer, Wine & Spirits Wholesaling • •

• •

• •

Regulation requires wholesalers to be intermediaries Market brands to licensed retailers (grocery, liquor stores) and food service providers (bars, restaurants, hotels) Overall fragmented industry Compete on operations (inventory management, location) and marketing (brands, sales tactics) Threats: online direct-to-consumer sales Barriers to entry: distribution network relationships, regulation

Sources: Gallup, ParkStreet

UNC PMT-Consumer Staples Group

External Drivers Stable Demand  Steady increase in American alcohol consumption  Product utilized in both good times and bad Margin Pressure  Extremely high industry advertising costs  Economies of scale External Competition  Traditional Players (Anheuser Busch, Molson Coors)  Rise of craft beer

UNC PMT-Consumer Staples Group

STZ Overview • Founded in 1945 Constellation Brands has grown to become the third largest beer company in the US

• Iconic brands like Corona and Modelo have experienced immense growth in recent years as Americans have diversified their drinking habits • STZ is also the world’s leader in premium wine sales with a particularly strong US presence while also carrying a fine line of spirits as well

UNC PMT-Consumer Staples Group

Investment Catalysts UNDERVALUED STOCK 

In the weeks following the surprise election of Donald Trump the stock has fallen by more than 11% as investors plan on Trump being tough on Mexican imports



STZ trading at in the middle of it 52 week range



P/E ratio of 26.14



Company posted solid earnings of $5.81 per share which is the highest in its history



Of the 20 analysts that cover STZ, 13 have a buy rating on the stock and only 1 analyst recommends a sell. Also, the

median price target among them is around $178 

Management firmly believes they can produce 10% EPS growth over the next three years Bloomberg, STZ Q3 Earnings Call, Yahoo Finance

UNC PMT-Consumer Staples Group

Risk Factors    

Trump trade war Backlash over alcohol consumption Stiffer competition for big names Growth of craft breweries

UNC PMT-Consumer Staples Group

Valuation Summary Constellation Trailing P/E

Diageo

Pernod Ricard

Beverage Industry

25.21

22.92

23.29

23.58

ROE

19.64%

27.53%

9.34%

3.45%

ROIC

8.87%

11.90%

4.96%

2.49%

4.10

5.15

3.33

1.56

Dividend Yield

1.06%

2.87%

1.77%

1.93%

Gross Margin

47.81%

59.46%

61.86%

38.03

EPS Growth Rate

5.56%

4.74%

5.28%

N/A

Sales Growth Rate

13.9%

-3.0%

1.4%

N/A

Price/Sales

UNC PMT-Consumer Staples Group

DCF Valuation • Even with conservative assumptions, Constellation is set for value accretion over the next 5 years and 23.96% upside. Weighted average cost of capital Terminal growth of FCF

4.51% 1.50%

NPV of unlevered free cash flow PV of terminal value

$3833.9 40,008.7

Enterprise Value Less: debt

$43,842.7 (7362.5)

Equity value

$36480.2

Diluted Shares, in millions: 196.06 Equity Value Per Share

$189.73

Current Stock Price

$153.05

UNC PMT-Consumer Staples Group