The power of suggestion. Hmm, I just sat down at my desk to take a look at the numbers and facts published by Constellation Brands (STZ) this morning, and find myself craving a Modelo Especial. May or may not happen. Tonight is a long way from this morning. The Mets do play a day game today, but I am scheduled to do some television this afternoon as well. Then again... it is my anniversary. Just sayin' there's a chance.
Constellation Brands went to tape with the firm's fourth quarter performance on Thursday morning. The firm reported EPS of $1.95, decisively beating expectations. Now, the number is not exactly comparable as it includes the sale of part of its wine and spirits portfolio to E&J Winery. The firm gets a little granular and also discloses that comparable (adjusted) EPS came to $1.82 (still easily beating the street), and that ex-Canopy Growth (CGC) , comparable (adjusted) EPS would have amounted to $1.93. Revenue landed at $1.95 billion, +2.6% year over year, and also a beat. In short, Constellation had a solid quarter. They also increased the quarterly dividend by a penny to $0.76 (1.3% forward yield) for any shareholders who plan on staying on the rolls, or getting themselves on the rolls by May 4th.
So why are the shares trading lower on Thursday morning? Simple. The guidance. It gets a little confusing. Mind you, that STZ reported EPS of $10.23 for FY 2021. The firm's estimate for FY 2022 is $6.90 to $7.20. Ex-Canopy Growth, which has really been an albatross for this company, the firm earned $10.44 in FY 2021, but expects to earn $9.95 to $10.25 in FY 2022. Expectations on the street are for something up in the $10.40's.
If you're in the name you are going to take some lumps. If you like it, you are waiting for an entry point. There is no doubt that certain businesses here are excelling. Or were. Let's take a look.
Just to point out the obvious... Constellation's share of Canopy's equity earnings losses came to $258 million for Q4 2021, and $679 million for FY 2021. The firm's Canadian venture at least to this point has not in the least been helpful.
Q4 beer sales increased 16%, while operating income increased 8%. For FY 2022, the firm sees sales growth of 7% to 9%, and growth in operating income of 3% to 5%. They're telling you that a hot business (at least for Constellation) is going to slow down. Q4 wine & spirits sales decreased 19%, due in part to the already mentioned divestiture. Organic net sales increased 8%. Operating Income dropped 45%. For the current year, STZ sees beer and wine sales decreasing 22% to 24%, with operating income dropping accordingly (-23% to -25%), however, organic sales are expected to grow 2% to 4%.
The firm sees operating cash flow at $2.4 billion to $2.6 billion, and free cash flow at $1.4 billion to $1.5 billion for the coming year.
This morning's dislocation does little to impact the trading range (basing pattern) that the shares have been in since New Year's Day. That said, as today's early action has taken some luster off of the stock's RSI (Relative Strength Index), and put some ugly on the daily MACD, the share price that had closed well above the 21 day EMA on Wednesday has opened and continues to trade below both that 21 day EMA as well as the 50 day SMA.
Unless these two lines can be regained and held rather quickly, STZ would be at risk of having swing traders and portfolio managers turn against the name almost simultaneously. What is on your side if you are long this name? The gap created is enormous, about $8. How soon does it fill? That's entirely up to the risk managers that control the portfolio managers. So glad I was raised professionally in an earlier era.
This stock can be bought for a trade today, but only by someone who watches their positions closely and acts aggressively. For investors, or someone who has to focus on something else during their productive hours, I would wait for the $210 level. Going out a month (May 21st) a trader can still get paid more than $3 for a $210 put. How's a net basis of $207 sound, if you do get tagged? Otherwise, $3 in the pocket.