Despite Constellation Brands Inc's (NYSE:STZ) stock shedding 26% year to date, there is further downside potential, according to BofA Securities.
The Constellation Brands Analyst: Analyst Peter Galbo downgraded the rating from Neutral to Underperform, while slashing the price target from $182 to $150.
The Constellation Brands Thesis: Consumption in the beer industry remains soft, creating risk to the company's sales and margin, Galbo said in the downgrade note.
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"Compounding this slowing consumption are more difficult 3Q YoY compares," he added.
The analyst cited three additional risks for Constellation Brands:
- Ongoing pressure on the core Hispanic demographic
- Longer-term alcohol consumption trends
- Continued capacity buildout in Mexico
"We believe consensus has become complacent," Galbo wrote, while adding that Constellation Brands' stock is trading at a premium to shares of Molson Coors Beverage Co (NYSE:TAP), "despite STZ being a largely landlocked US business."
It’s worth noting that analysts are split on alcohol consumption trends, particularly as it relates to dwindling Gen Z customers.
Wine Enthusiast stated that Gen Z typically puts discretionary funds toward rent and inflated grocery bills over alcohol.
With stagnant wages and economic headwinds, Gen Z's alcohol pullback is considered inevitable. The looming threat of wine tariffs is also expected to dent the $88 billion U.S. alcohol market.
Constellation Brands owns various wine brands, including Robert Mondavi, Kim Crawford, Meiomi, Simi Winery, Ruffino, and The Prisoner Wine Company.
Price Action: Shares of Constellation Brands had declined by 2.76% to $159.10 at the time of publication on Tuesday.
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