Cramer: The Next Big Leg up for Constellation Brands May Be in the Offing

 | Jul 12, 2017 | 6:31 AM EDT
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It is not a challenging environment for Constellation Brands (STZ) .

That's what I kept thinking about last night after interviewing Rob Sands, the CEO of Constellation, after the biggest blowout quarter of 2017 for any consumer goods company. In fact, I would say this moment seems challenging for everyone in the consumer products industry but Constellation Brands.

Sands is the man who has built this once-smallish wine and spirits company into a $37 billion behemoth, the biggest growth powerhouse in the industry. He's the man who bought tequila maker Casa Noble for $20 million almost three years ago, and will make it bigger than Casamigos, which Diageo paid a billion bucks for just last month, and he will do it in no time flat.

He's created an incredible roster of the best premium brands of whiskey (High West), wines (the newly acquired Schrader Cabernet Sauvignon) and of course beers, a category where his company is responsible for 60% of the growth in the industry.

Now, I think that it is important to point out that there was a time when you could say that Sands was just in the right position at the right time: the company was able to get full control of all the U.S. rights to Corona and Modelo as part of a government-forced divestiture required for Anheuser Busch Inbev BUD to close on Grupo Modelo back in April of 2013. The government, you could say, gave the company a gift via antitrust. But there have been many similar such gifts for other companies that didn't pay off.

This wasn't one of them.

It's far more important to consider what the company has done since it acquired the sole U.S. import rights to Modelo and Corona. That deal was struck when the stock was at $45. It is now at $194.

Sands has aggressively pursued a strategy of going upmarket in every category of spirits, including whiskey, craft beer, tequila and all sorts of wines. So far, everything has paid off.

I know, so what? That's how the stock got up here.

But I think the next big leg up might be in the offing. Out of nowhere Pacifico, a down-and-dirty beer in Mexico that came with the Modelo package, has become the fastest-growing import beer in this country. I do not believe this totally unpredictable windfall is in the stock.

Let me tell you why.

We own a bar in Brooklyn that's the spitting image of a bar in San Miguel de Allende Mexico. We go down to Mexico quite a bit, and as a lark I always order Pacifico. Why? Because it's like Keystone or Busch, a very down-and-dirty beer that's incredibly cheap, but I think tastes fabulous. I have always thought that the yellow bottled beer is ridiculously mispriced.

We have only two taps at our bar: Modelo and Corona. But because I like Pacifico, we featured it at our bar when we opened. We charged very little for it, because I know it as a knock-off beer. In the last three years, though, it has gone from some beer I thought I was the only person who knew, to the third most popular beer after the tap beers and we can charge more for Pacifico than we do for Corona and Modelo! Little did I know, our experience with Pacifico is an experience that is sweeping the country.

I believe the next leg up of Constellation's stock may come not from whiskey or from the premium wines, even as both are growing like mad, nor from tequila maker Casa Noble, even as Sands' timing on that acquisition is proving to be brilliant.

I think it will come from Pacifico. Who would have thought that a beer thought to be an also-ran second-rater when he purchased the U.S. Modelo rights would turn out to be the fastest growing premium brand in this country, particularly loved by, you guessed it, millennials!

I know I say wait for a dip a lot. But in my experience, Constellation's stock does dip. I know I am glowing in my enthusiasm for the story. But it's hard not to be.

Still, when you look at the make-up of the beer category and you see a beer take off like this Pacifico is in this country, all you can say is it's not in the numbers, especially when it comes to retail, where the beer dramatically lags in shelf space versus where I think it will be two years from this time.

And maybe that's all that matters.

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