Constellation Brands — How to Play Thursday’s Earnings Report

Wine and beer company Constellation Brands (NYSE: STZ ) reports earnings for
the quarter ending Aug. 31 on Thursday. With a market that is highly correlated
at the moment, the earnings news should help investors separate fact from
fiction. Historically, the beer and wine industry is said to be defensive. Sales
in the category are likely to show incremental growth irrespective of economic
conditions. Given the stresses in the economy at the moment, one might think
more consumers are drinking their troubles away . The market, of course, is
focused on other items at the moment mainly issues in Europe and the
possibility of a double-dip recession. During the past four quarters,
Constellation has exceeded average Wall Street estimates: In the last quarter
ending May 31, the company beat estimates but reduced guidance for the year. The
company stated it would make less because of charges associated with layoffs.
Normally such a one-time event would not be a concern, but in this market
environment, investors ran for the hills. Interestingly the Wall Street
estimates for the quarter ending Aug. 31 have increased during the past 90 days.
The expectation today is for the company to make 66 cents per share, up from 62
cents per share. For the fiscal year ending Feb. 28, 2012, the average Wall
Street estimate is $1.98 per share. That number increases 9% to $2.15 in the
following year. Click to Enlarge At current prices, STZ shares trade for nine
times current-fiscal-year estimated earnings. Since the last earnings report,
shares have fallen in value by 11%. During the past 12 months, the stock is
flat. Given the volatility in the market, one would think investors would be
flocking to Constellation. The defensive nature of the company combined with
strong demand for its products ought to be attractive to anyone looking to
preserve capital with the prospect of incremental growth. Constellation is
trading for a multiple of earnings equal to its expected profit growth rate.
That is cheap considering other alternatives. If demand for spirits is growing
because of distress around the globe, earnings are likely to be better than
expected. I don't think investors can get hurt owning Constellation at these
levels. Look for the company to meet increased Wall Street expectations in the
period when it reports results Thursday. Shares likely will jump 3% to 5% with
solid numbers. Other companies reporting results this week include Helen of Troy
(NASDAQ: HELE ). As of this writing, Jamie Dlugosch did not own a position in
any of the aforementioned stocks.